BERLIN, March 25 (Xinhua) -- Escalating tensions in the Middle East have dampened German business confidence and cast a shadow over the outlook for Europe's largest economy, according to a monthly report released Wednesday by the Munich-based ifo Institute.
The ifo business climate index fell to 86.4 points in March, down from 88.4 in February, reversing gains recorded earlier this year following a period of decline. While companies' assessment of the current situation remained unchanged, expectations for the next six months deteriorated significantly, the institute said.
"The war has put any hope of a recovery on ice for the time being," said ifo President Clemens Fuest, referring to Germany's economic prospects.
Confidence weakened markedly across all major sectors. Sentiment in tourism and logistics was particularly affected by disruptions linked to the conflict. Manufacturing sentiment also declined after several months of improvement, with energy-intensive firms reporting the strongest impact as oil prices surged.
Rising energy costs are also fueling inflation concerns. The trade sub-index dropped noticeably in March, as wholesalers and retailers grew more pessimistic amid mounting price pressures and weakening consumer sentiment.
According to a separate report by the German Institute for Economic Research (DIW), the latest wave of turbulence, largely driven by higher energy prices following U.S.-Israeli attacks on Iran, is creating additional headwinds for the German economy. DIW now forecasts economic growth of 1.0 percent in 2026 and 1.4 percent in 2027, down by 0.3 and 0.2 percentage points, respectively, from its previous projections in December 2025.
