Volkswacht Bodensee - Germany warns tax revenues to be hit by Iran war

The energy shock triggered by the US-Israeli conflict against Iran is hitting the German economy and its power-hungry manufacturers especially hard.

Tax income for the federal government and local authorities is projected to be nearly 70 billion euros ($82 billion) lower between 2026 and 2030 than forecast in October, ministry figures showed.

For this year alone, revenues have been revised down by 17.8 billion euros.

This estimate "shows just how much the war in Iran is harming our economy", said Finance Minister Lars Klingbeil in a statement.

"The irresponsible war waged by Trump and the resulting global energy price shock are currently slowing positive economic momentum," added Klingbeil, who is also vice chancellor.

Europe's biggest economy has been mired in stagnation for several years, hit by high energy costs, a manufacturing slump and weak demand for its exports.

The government of Chancellor Friedrich Merz was betting on a rebound this year driven by hefty public spending, but the war has dimmed those hopes.

Berlin has halved its growth forecast for this year, and now expects economic expansion of just 0.5 percent.

Despite lower tax revenues, the draft budget for next year envisages a substantial increase in investment, which is set to push up government borrowing.

T.Suter--VB