German industrial output rose 0.9 percent in May, beating analyst expectations of a 0.3 percent gain, according to data released by the federal statistics office Destatis. The automotive sector led the increase with a 3.6 percent jump, and machinery production climbed 1.3 percent. The uptick came despite the disruption of shipping through the Strait of Hormuz, where a military confrontation between Iran and the United States sent energy prices sharply higher earlier this year. Viewed from Berlin, the numbers suggest pockets of resilience, yet the three-month comparison shows production edging up just 0.1 percent, and May’s level was flat year-on-year. Overall output remains eight percent below the 2021 monthly average.

ING analyst Carsten Brzeski noted that some German industries may have benefited as Asian competitors were hit harder by the Hormuz closure. However, German Finance Minister Lars Klingbeil told reporters in Berlin that the war “has halved the economic recovery we hoped for this year” and forced the government to postpone debt payments. The conflict, which began on 28 February, saw Iran blockade the waterway and the US respond with its own naval blockade and retaliatory strikes. A memorandum of understanding signed remotely on 18 June set deadlines for the US to lift its blockade and for Iran to restore shipping, but the economic drag is already embedded in fiscal planning.

In Madrid, the Council of Ministers approved a 2027 spending ceiling of €226,032 million, a 6.6 percent increase that marks a new nominal high. The figure is the first since 2021 to be financed entirely from national resources, as EU recovery funds expire in August; excluding them, the rise is 4.6 percent. The accompanying stability path targets a public deficit of 1.8 percent of GDP in 2027, falling to 1.5 percent by 2029, and a debt ratio declining from 97.6 percent to 95.3 percent over the same period. The government is relying on double-digit tax revenue growth to fund the expansion. Simultaneously, it proposed allowing regions to have asymmetric deficit targets—a departure from uniform limits—so that communities such as Valencia or Murcia could absorb a larger share of the 0.1 percent deficit ceiling. The initiative, championed by Catalonia and endorsed by Finance Minister Arcadi España, is seen in Spanish political circles as a gesture to secure parliamentary support for the budget.

The stability path now faces a vote in the Congress of Deputies, with a first plenary scheduled for 14 July and a possible second attempt on 23 July. Opposition from Junts, the PP and Vox makes rejection likely, which would force the government to fall back on deficit targets agreed with Brussels. For Germany, the next milestone is the implementation of the US-Iran memorandum, with deadlines for lifting the naval blockade and restoring Hormuz traffic, though the economic aftershocks will continue to shape fiscal decisions in Berlin.