German business sentiment hits lowest level since 2020 amid Iran war impact

German business sentiment fell more than expected in April to its lowest level since May 2020, as the war in Iran weighed heavily on expectations for Europe’s largest economy, data showed Friday.

The ifo Institute said its business climate index dropped to 84.4 in April from 86.3 in March, missing market expectations of 85.7.

“The German economy is being hit hard by the Iran crisis,” ifo President Clemens Fuest said.

Companies’ assessment of current conditions fell to 85.4 from 86.7, while expectations declined more sharply to 83.3 from 85.9.

“The German economy is losing its confidence,” said Klaus Wohlrabe, head of surveys at the ifo Institute, noting that sentiment weakened across all sectors.

The data follow separate figures showing Germany’s private sector slipped into contraction in April for the first time in nearly a year, adding to signs that the country’s recovery is being delayed by energy and trade shocks linked to the Middle East conflict.

Germany’s Economy Ministry this week cut its growth forecasts for 2026 and 2027 while raising inflation projections, citing the impact of higher energy costs and weaker external demand.

Last year, Germany approved a €500 billion ($584 billion) infrastructure fund aimed at boosting investment and supporting growth after a prolonged period of economic weakness.