Germany’s new fiscal relief package to cushion higher energy costs from the conflict in Iran is expected to have only a marginal effect on growth and inflation, according to an analysis by Becker at Deutsche Bank. The measures, valued between EUR 7 billion and EUR 14 billion, equal roughly 0.15%–0.30% of projected German GDP in 2026.
Limited boost to growth and inflation
The package centers on a temporary energy tax cut and a one-off bonus payment to employees. Becker argues these steps will add little to economic momentum, with the overall inflation rate expected to fall by only about 0.05 percentage points due to the measures.
At the same time, Deutsche Bank has raised its 2026 inflation forecast for Germany to 2.9%, up from 2.7% previously, citing persistently strong oil prices as the main driver. Much of the gross relief from the package is expected to be offset by higher revenues from windfall profit taxes and tobacco taxes, muting its net impact on household purchasing power.
Little scope for wider fiscal expansion
The report stresses that a broader fiscal push is unlikely under current conditions. An expansion of support would probably only be considered if Germany slips back into recession or if energy prices spike more sharply.
For now, the measures are described as temporary and narrow, leaving limited room for additional budgetary flexibility over the year. Berlin’s restrained stance effectively shifts more of the burden of stabilizing the economy onto monetary policy.
Pressure builds on the European Central Bank
With Europe’s largest economy offering only modest fiscal help, the European Central Bank (ECB) faces a more complex policy trade-off. ECB president Christine Lagarde has reiterated that future interest rate decisions will be strictly data-dependent, increasing the importance of each new economic release for rate expectations.
Eurostat’s latest flash estimate, published on 7 April, showed euro area harmonized consumer prices rising 3.1% year-on-year in March, above the earlier estimate of 2.9%. The stronger reading intensifies pressure on the ECB to prioritize price stability even as growth indicators remain weak.
Germany’s industrial production was flat in February, underscoring a picture of stagnation in the bloc’s core economy just as inflation proves stickier than expected.
Energy prices add to the strain
High energy costs remain a central challenge. Brent crude futures on the Intercontinental Exchange have stayed above USD 105 per barrel for the past week, raising input costs for companies and eroding disposable income for households across the euro area.
These elevated prices reinforce the upward pressure on inflation while simultaneously weighing on real economic activity.
Rising expectations of market volatility
The combination of persistent inflation, subdued fiscal action and data-dependent monetary policy is feeding expectations of increased volatility in financial markets. Currency markets are seen as particularly exposed, with traders focusing on the euro’s moves against the US dollar in the coming weeks.
Attention is now turning to the upcoming German ZEW economic sentiment survey, which will offer a forward-looking gauge of confidence among financial experts and institutions.
Reflecting mounting uncertainty, the Euro STOXX 50 Volatility Index has risen 12% in the last two weeks to 24.5, a level that signals growing concern among market participants about near-term price swings in European equities.
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