By Ed Frankl
German business confidence tumbled this month as the energy-price shock from the war in the Middle East dug into companies' outlooks, according to a closely watched monthly survey.
The Ifo Institute said Wednesday that its business-climate index, based on around 9,000 monthly responses from businesses, fell to 86.4 in March, down from 88.4 in February.
That marked the lowest level since February last year, a result of more pessimistic expectations, Ifo said. However, a consensus of economists polled late last week expected a sharper decline to 85.5.
"Uncertainty among companies has increased noticeably. The war in Iran has put any hope of a recovery on ice for the time being," Ifo President Clemens Fuest said.
Sentiment had been improving in recent months, helped by improving domestic demand and particularly by expectations that fiscal stimulus planned by Germany's government would boost the country's manufacturing sector. Now that industry is set to bear much of the brunt of sky-rocketing energy prices prompted by the Iran conflict.
The decline in the index suggests that the renewed rise in energy prices could derail the tentative recovery in the German economy seen in recent months, Capital Economics senior Europe economist Franziska Palmas said in a note to clients.
"We think Germany will be more resilient to this energy shock than in 2022 because the rise in energy prices has been much smaller--so far," she said.
Still, business sentiment worsened in all four of the sectors surveyed by Ifo: manufacturing, services, trade and construction. Energy-intensive industries were most affected among manufacturers, while services, tourism and logistics had a major decline in sentiment, Ifo said. For construction, expectations fell more sharply than at any time since March 2022, it said.
"With every week that the war in Iran continues, economic sentiment is further dampened and economic growth slows down again," Sebastian Wanke, economist at KfW Research, said in a note.
The broad-based weakening contrasted with purchasing managers' index data published Tuesday, which showed a decline in German services activity, but manufacturing business still expanding. However, that might be a temporary factor due to firms getting orders ahead of expected supply disruption in coming months due to the Iran conflict.
In a speech on Wednesday, European Central Bank President Christine Lagarde said the bank wouldn't hesitate in a "forceful or persistent" response should eurozone inflation rise significantly from its 2% target.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
March 25, 2026 05:49 ET (09:49 GMT)
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