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(Bloomberg) — Germany’s business outlook deteriorated more than expected, adding to fears that higher energy costs stemming from the Iran conflict will derail the country’s economic revival.
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An expectations index by the Ifo institute dropped to 83.3 in April from a revised 85.9 the previous month — the lowest level since August 2023. That was well below the 85.5 median estimate in a Bloomberg survey. A gauge measuring current conditions also worsened more than anticipated.
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“Companies are considerably more pessimistic about the coming months,” Ifo President Clemens Fuest said Friday in a statement. “The German economy is being hit hard by the Iran crisis.”
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The numbers add to gloomy news for Europe’s largest economy this week, after S&P Global’s monthly business surveys showed private-sector activity unexpectedly shrank in April. The government also slashed its 2026 growth forecast to 0.5%.
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The war-induced spike in oil and natural gas prices, alongside heightened uncertainty, is weighing on economic activity that was expected to gain momentum over the course of the year thanks to hundreds of billions of euros in infrastructure and defense outlays.
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Chancellor Friedrich Merz’s government, which promised to revive growth after a multi-year malaise, has unveiled €1.6 billion ($1.9 billion) in fuel-price relief, though there’s pressure for more.
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At the same time, costlier energy is already pushing inflation up in Germany and the region as a whole, raising stagflationary concerns for the European Central Bank. Investors are betting on two interest-rate hikes this year, though policymakers aren’t expected to deliver the first of those next week.
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—With assistance from Kristian Siedenburg, Joel Rinneby, Harumi Ichikura and Nick Heubeck.
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