Economic advisers to German Chancellor Friedrich Merz dramatically revised their outlook, almost halving the country's growth forecast for this year. The sharp downgrade reflects mounting concerns about external pressures affecting Germany's economic performance. Government economic experts cited geopolitical tensions and international trade disputes as primary factors dragging on activity.

The revision comes as the Middle East conflict and shifting US trade policies create uncertainty across European markets. Germany's export-dependent economy faces particular vulnerability from trade disruptions and energy supply concerns stemming from regional tensions. Economic advisers typically provide guidance that shapes fiscal policy decisions.

Inflation expectations also rose in the updated assessment, suggesting price pressures may accelerate beyond previous projections. Rising energy costs and supply chain disruptions from geopolitical conflicts typically drive inflation higher. The combination of slower growth and faster inflation poses particular challenges for policymakers.

The revised outlook signals potential headwinds for European economic recovery as Germany, the eurozone's largest economy, faces dual challenges. Markets watch for policy responses as the Merz government navigates between supporting growth and managing price stability amid external uncertainties.