BERLIN, April 30 (Xinhua) -- Germany's economy expanded modestly in the first quarter (Q1) despite the initial fallout from the Middle East conflict, but economists warned the impacts could intensify, weighing further on growth in the months ahead.

Gross domestic product (GDP) grew by 0.3 percent quarter-on-quarter, preliminary data released Thursday by the Federal Statistical Office (Destatis) showed. The reading follows two quarters of contraction or stagnation in 2025 and a 0.2-percent expansion in the final quarter of last year.

Private and government consumption were the main growth drivers, with exports also contributing, Destatis said.

"The German economy had a good start to the new year," said Nils Jannsen, head of German economic forecasting at the Kiel Institute for the World Economy, but warned that sharply rising energy and raw material prices since March, which are linked to the Middle East conflict, were beginning to pressure activity.

Signs of recovery had been building before the conflict broke out, Jannsen said, but the fallout now risks derailing the rebound.

"If prices fail to ease soon, economic output could fall in the second quarter," he said, adding that sentiment among businesses and households had already begun to deteriorate markedly.

The ifo Institute painted a similarly bleak picture. Its business climate index fell to 84.4 points in April from 86.3 in the previous month, hitting its six-year low, as companies turned more pessimistic about the coming months.

Pessimism was most acute in services and trade, where firms feared energy-driven inflation would curb consumer spending, ifo said, while manufacturing companies, particularly in the chemical sector, flagged supply bottlenecks.

Inflation is adding to the pressure on Europe's largest economy. Destatis data released Wednesday showed consumer prices rose 2.9 percent year-on-year in April, accelerating from a sharp jump to 2.7 percent in March, further eroding household purchasing power and threatening to drag on consumption.

"It would be risky to assume that today's performance can simply be continued," said Carsten Brzeski, global head of macro at ING Research, in a note on the latest GDP data.

Brzeski noted soaring energy prices and a lack of structural reform "do not bode well" for the outlook. The energy price shock has also exposed tensions within the ruling coalition, he added, complicating efforts to balance short-term relief with longer-term reform.

Germany's economy contracted for two consecutive years in 2023 and 2024 before growing 0.3 percent in 2025, narrowly avoiding a prolonged recession. With exports facing headwinds from U.S. tariffs and weak demand, Berlin has increasingly looked to domestic consumption and an expansive fiscal push, including infrastructure and defense spending, to drive the recovery.

However, economists said the Middle East shock has disrupted what had been a fragile recovery and is putting pressure on the government's plans to support growth.

Data from the German Institute for Economic Research (DIW) showed the recovery that began over the winter is losing momentum as energy costs and heightened uncertainty mount.

The institute's economic barometer rose above the 100-point expansion threshold in February for the first time since early 2023, only to slip back below it in the following month and fall further in April.

The government last week also slashed its 2026 growth forecast to 0.5 percent from 1 percent projected in January, warning the outlook hinges heavily on how the Middle East situation unfolds and remains subject to "considerable uncertainty." ■