Business sentiment among German companies deteriorated in March

German business sentiment deteriorated sharply in March—the war in Iran has made companies more skeptical about the expected economic recovery in the country. This is according to a report by the Ifo Institute.

The Ifo Business Climate Index fell to 86.4 points in March from 88.4 points in February due to more pessimistic expectations. However, assessments of the current situation remain unchanged at 86.7.

As the survey revealed, uncertainty among companies has increased significantly, and the conflict in the Middle East has jeopardized hopes for the recovery of Europe’s largest economy.

Business sentiment has deteriorated in the manufacturing industry, the services sector, and retail trade, and most sharply in the construction sector. The latter, however, views the current situation favorably.

The ifo export expectations index fell to -0.9 points in March, compared to +2.7 points in February.

“The war in Iran has significantly increased uncertainty among exporters. Many companies fear a decline in demand in key export markets,” explains Klaus Wolrabe, head of the ifo survey department.

In contrast, automakers expect a clear increase in exports, with the figure rising to its highest level since June 2020, and several other sectors are also hoping for growth in international sales. Currently, there is a slight uptick in mechanical engineering, manufacturing, and metal processing. How the export business develops in the coming months will largely depend on the course of the conflict, Volrabe noted.

If the war and the closure of the Strait of Hormuz continue for another one or two months, the economic damage to Germany will be clearly noticeable, according to Jörg Krämer, chief economist at Commerzbank, Reuters reports.

Franziska Palmas, senior European economist at Capital Economics, noted that the decline in the Ifo index and the composite PMI index in March indicates that a resurgence in energy prices could derail the fragile recovery of the German economy. However, the PMI indices showed an improvement in manufacturing activity.

Palmas believes that Germany is currently in a more stable position than it was in 2022, as the rise in energy prices has so far been much more moderate, and a significant portion of the least profitable energy-intensive production has already been lost for good. However, in her view, GDP may still stagnate in the middle of the year.

As a reminder, German steelmakers increased steel production by 4.8% year-on-year in February 2026, reaching 2.83 million tons. Compared to the previous month, the figure decreased by 8.1%.