The upward trend of the German economy has been weakened by the Iran war. The economic barometer of the German Institute for Economic Research (DIW) rose slightly in April, but is below the four-year high in February. Nevertheless, it is still above last year’s values.
“The geopolitical escalation is hitting the German economy in a phase in which a dynamic recovery has just emerged,” said DIW economics director Geraldine Dany-Knedlik. “Rising energy prices and the high level of uncertainty are likely to slow the further upswing.”
The war in the Middle East that began on February 28th has driven up oil and gas prices. This leads to an increase in all prices. Rising costs for companies, weakened global demand and increasing risks for international supply chains are dampening sentiment. Private households are also spending less money.
All of this is dampening both German foreign trade and the domestic German economy, whose strength had previously stabilized the overall economy.
Special funds stabilize the economy – but only a little
According to the DIW, government investments in the areas of defense, infrastructure and climate transformation stabilize the economy. However, this effect would currently be overshadowed by the external burdens.
According to the DIW, the mood in the industry remains weak. “The already subdued willingness of companies to invest is being further weakened by the current tension,” said DIW economic expert Laura Pagenhardt. »The high level of uncertainty about geopolitical developments, energy prices and the global economy makes planning much more difficult and is slowing down the initial improvement in the industry.«
The mood in the service sector is also deteriorating. The declining purchasing power of households is dampening the consumer climate and clouding expectations, said the DIW.