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(Bloomberg) — German investor optimism dropped to the lowest level in more than three years as the Iran war eats away at a rebound in Europe’s biggest economy.
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An expectations index by the ZEW institute declined to -17.2 in April from -0.5 in March. That’s worse than anticipated by all but three economists in a Bloomberg survey, which had a median estimate of -5.8. A measure of current conditions also fell.
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“The economic consequences of the Iran war for the German economy go far beyond price increases,” ZEW President Achim Wambach said Tuesday in a statement. “Businesses are concerned about long-term shortages of energy supply, and this discourages investment and weakens the effect of government stimuli.”
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Germany, like the rest of the continent, has seen inflation jump and sentiment sour due to the surge in energy prices resulting from the fighting in the Middle East. The full effect remains unclear, however. The European Central Bank is expected to keep interest rates steady on April 30 as it assesses the damage.
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Germany’s leading research institutes see the economy growing at less than half the pace predicted only a few months ago, with public investments in infrastructure and defense providing at least some relief. Gross domestic product edged up by just 0.2% in 2025 following two years of contraction.
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The government is still weighing its response to the energy crisis. After unveiling €1.6 billion ($1.9 billion) in fuel-price relief, including a temporary gasoline-tax reduction, Chancellor Friedrich Merz said Sunday that his coalition has further measures prepared should the situation escalate.
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—With assistance from Joel Rinneby, Harumi Ichikura, Kristian Siedenburg and Alexander Weber.
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