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Germany Business Confidence March 2022

Germany: Business sentiment nosedives in March

Business sentiment soured markedly at the close of the first quarter due to the Russian invasion of Ukraine: The ifo Business Climate Index dropped to a 14-month low of 90.8 in March from 98.5 in February.

The headline deterioration was driven by a steep fall in expectations, which was even stronger than the one recorded at the start of the Covid-19 pandemic. The war in Ukraine has exacerbated existing supply-chain disruptions, which is hurting manufacturing firms’ outlook, while the armed conflict also sent commodity prices spiraling, fueling inflation, and weighing on the services and trade sectors’ outlooks. Furthermore, sentiment regarding the current situation also worsened albeit at a markedly softer pace.

Carsten Brzeski, global head of macro at ING, added:

“German businesses seem to be realising that the war is more of a game-changer for the German economy than Covid-19 has ever been. […] With the war in Ukraine, the world has dramatically changed. The outlook for the German economy has also dramatically changed. While a month ago, economic prospects for Germany looked bright and a strong rebound was in the making, stagflation has now become the most likely scenario.”

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