German business morale dropped in April to its lowest level since the Covid pandemic as the Middle East war hit Europe’s top economy hard.
The closely-watched Ifo institute confidence barometer dropped to 84.4 in April, down from 86.3 in March, marking its lowest level since May 2020.
“Companies are considerably more pessimistic about the coming months. They also assessed their current situation as worse,” Ifo president Clemens Fuest said.
“The German economy is being hit hard by the Iran crisis.”
The surge in oil and gas prices triggered by US-Israeli attacks on Iran and near total closure of the Strait of Hormuz has weighed on Germany, where energy-intensive industries account for almost a fifth of industrial output.
A survey released Tuesday showed that investor confidence has now fallen to its lowest level since the end of 2022, after Russia’s full-scale invasion of Ukraine.
And the German government on Wednesday halved its growth forecast for the year to just 0.5 percent.
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A run of weak data suggested “the impact of the Iran conflict on the German economy is more severe than most economists had forecast”, Deutsche Bank economist Robin van Winkler said.
“There are therefore growing signs that the expected economic recovery will be delayed until the second half of the year — if it happens at all,” he added.
Germany’s economy has stagnated since 2022, hit by elevated energy costs at home as well as increasingly fierce Chinese competition abroad in key export industries from cars to chemicals.
Chancellor Friedrich Merz has promised to borrow and spend to revive the economy but critics charge that the cash will do little without far-reaching reforms that reduce costs and bureaucracy for businesses.
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