Structural issues in German economy predating Iran war must be addressed
Germany must address deeper structural issues harming growth predating the impact of the Iran conflict, say leading audit, tax and business advisory firm, Blick Rotheberg.
Nils Schmidt-Soltau, a partner at the firm, said: “The May 2026 German Federal Ministry of Finance report shows a further weakening in Germany’s outlook, with growth for 2026 revised down to around 0.5% and 0.9% in 2027, reflecting higher energy prices and geopolitical uncertainty linked to the Iran conflict. But the report also points to deeper structural challenges damaging growth that predate the current shocks and are likely to persist beyond them.”
He added: “Without greater alignment and momentum behind reform, there is a risk that Germany’s growth trajectory remains subdued even as cyclical pressures begin to ease. Policy remains focused on investment, reform and fiscal consolidation, but the underlying challenge is more fundamental. Germany is transitioning away from an export-led, energy-intensive model, and higher energy costs, demographic change and labour market pressures are increasingly testing the resilience of its economy.”
Nils said: “This highlights the challenge of translating policy into effective outcomes. While the need for structural reform is widely recognised, there appears to be less clarity on the specific measures required to materially improve medium-term growth. In practice, the debate centres on a relatively familiar set of levers.”
He added: “These include strengthening pension sustainability by gradually increasing effective retirement ages and encouraging longer working lives, improving labour market participation through better incentives for older workers and second earners, expanding childcare provision and addressing skills shortages, and reforming elements of the tax system, particularly joint taxation arrangements that can discourage second earners from increasing labour supply. Alongside this, there is a continued focus on boosting productivity through investment in vocational training and re-skilling, as well as reducing regulatory complexity and accelerating infrastructure delivery to support private investment.”
Nils said: “There are clear parallels with the UK, where many of the same themes apply. The debate around pension sustainability and labour market participation is increasingly prominent, particularly in the context of higher economic inactivity in recent years. Similarly, questions around tax design, skills gaps and the broader business environment continue to feature heavily in discussions on how to improve productivity and support long-term growth. In both countries, the challenge is less about identifying the issues and more about delivering politically viable reforms at sufficient pace and scale.”