The ZEW Economic Confidence Index, a survey of expectations by 178 analysts and investors at banks, insurance companies and businesses, fell sharply to negative 0.5 in March. The ZEW Economic Confidence Index reached 58.3 in February.
Economists surveyed by the Wall Street Journal earlier predicted that this index would decrease but remain at 38.5. The actual result marked the first time the index fell to a negative level since April 2025.
The ZEW index has collapsed. The escalation in the Middle East pushes energy prices up sharply and increases inflationary pressure. This increases the risk that Germany's economic recovery may slow down," ZEW Chairman Achim Wambach said.
He said that the level of impact on the economy will depend on the intensity and duration of the conflict. Last week, leading economic research institutes such as Ifo Institute and Kiel Institute for the World Economy lowered their growth forecast for 2026 due to the impact of the war.
Financial market experts are skeptical about the possibility of the conflict being resolved soon," Mr. Wambach added.
Surveys show that energy-consuming industries such as automobiles, chemicals, pharmaceuticals and mechanics are the most heavily affected by the conflict.
Industry, which was Germany's growth pillar, has weakened in recent years due to increased competition from China and high energy costs after the Russia-Ukraine conflict broke out.
Previously, there were expectations of economic recovery in Germany when the government implemented fiscal stimulus packages to boost investment in defense and infrastructure. However, data shows that industrial production and factory orders both decreased at the beginning of this year.
Pressure on businesses is also increasing as the European Central Bank (ECB) is forecast to raise interest rates after the US-Israel attack on Iran on February 28.
Mr. Wambach said that this is also the reason for the decline in confidence in the construction sector, a sector that is very sensitive to high borrowing costs. Currently, the ECB is forecast to keep interest rates unchanged in this week's meeting.
The Iran conflict along with the sharp increase in oil and gas prices has raised concerns that the fragile recovery of the German economy may be deviated, even though the country is benefiting from hundreds of billions of euros spent on infrastructure and defense. Last week, Deutsche Bank lowered its growth forecast for 2026 from 1.5% to 1%.
The data was released right before the 2-day meeting of the ECB, where policymakers will assess the impact of the Iranian conflict on growth and inflation in the euro zone.
Even before the conflict in the Middle East broke out, the German economy had a not very positive start to the year, with industrial production, orders, exports and retail sales all lower than expected.
However, positive signals appeared in February when business surveys showed that the manufacturing industry was expanding again for the first time since 2022.
In 2025, the German economy grew by only 0.2% after 2 consecutive years of decline.
