German business sentiment drops sharply as war in Iran hits economy

Sentiment in the German economy deteriorated significantly further in April due to the war in Iran, a leading economic institute reported on Friday.

The ifo Institute's Business Climate Index fell by 1.9 points to 84.4 points, lower than analysts' estimate of a decline to 85.7 points.

The companies surveyed by the institute gave a more negative assessment of their current business and future expectations.

"Hopes for an upswing have been dashed," ifo President Clemens Fuest said. "The German economy is being hit hard by the Iran crisis."

Commerzbank chief economist Jörg Krämer said the slump in the ifo index "shows just how hard the energy price shock is hitting the German economy."

"Every additional day without oil supplies through the Strait of Hormuz increases the risk of recession," he added.

The German government this week halved its forecast for economic growth in 2026 from 1% to 0.5%, as the fallout from the US-Israeli war in Iran continues to hit economies across the globe.