The war in the Middle East is weighing on the German economy and will initially slow down the recovery that began in the winter half-year, the Bundesbank’s latest Forecast for Germany states. Nevertheless, Bundesbank President Joachim Nagel is confident: Economic activity will gain traction again over our forecast horizon up to 2028, he said when presenting the Bundesbank’s new Forecast for Germany. The forecast projects that the inflation rate will rise to almost 3% in 2026 and 2027, only returning to just below 2% in 2028.

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The average inflation expectations of households in Germany for the next twelve months decreased by 0.2 percentage point in June to 3.2 %. They are thus still 0.5 percentage point above the expectations from February 2026, before the outbreak of the war in Iran. In response to a qualitative question on inflation rate developments, the share of households expecting inflation rates to rise during the next twelve months declined by 11 percentage points on the previous month to 69 %. Average expectations for the inflation rate in three years’ time declined in June, dropping by 0.1 percentage point to 3.2 %. Average expectations five years ahead went up by 0.1 percentage point in June to 3.5 %.

When the third stage of European monetary union (EMU) was initiated on 1 January 1999, monetary and foreign exchange policy was transferred to the European System of Central Banks (ESCB), which consists of the European Central Bank (ECB) and the national central banks of the participating member states.