German Business Confidence Weakest Since 2020

(RTTNews) - German business confidence declined to its lowest level in nearly six years in April, driven by the supply chain disruptions and energy shocks caused by the war in the Middle East, survey data from the ifo Institute revealed Friday.

The business climate index dropped to 84.4 in April from 86.3 in March. The reading hit the lowest since May 2020 but remained above economists' forecast of 85.7.

Companies were considerably more pessimistic about the coming months and they assessed their current situation as worse.

"The German economy is being hit hard by the Iran crisis," ifo Institute President Clemens Fuest said.

The current situation index fell to 85.4 in April from 86.7 in the previous month. At the same time, the expectations index declined to 83.3 from 85.9 a month ago.

The survey showed that the business climate in manufacturing deteriorated in April due to significantly more pessimistic expectations. By contrast, companies assessed their current situation as somewhat better despite supply bottlenecks.

In the service sector, business confidence declined considerably in April. Expectations continued to deteriorate and assessments of the current situation became worse.

The business climate in trade also dropped significantly as companies noticeably adjusted their assessments both for expectations and the current situation downward. Retailers were worried in particular as rising inflation would weigh on consumer confidence.

In construction, the business climate plummeted largely due to the sharp deterioration in expectations. Companies were considerably less satisfied with current business.

A plunging ifo index underlines the growing concerns among German companies about the adverse economic impact of the war in the Middle East, ING economist Carsten Brzeski said.

The economist noted that the war in the Middle East, the energy price shock and possible supply chain frictions weigh on the German economy.