The mood among German companies deteriorated significantly in March due to the war in Ukraine.

The business climate index of the Munich Ifo Institute fell to 90.8 points, as the institute announced on Friday.

In the previous month, hopes of an end to the corona pandemic had caused the barometer to rise to 98.5 points.

The February 24 Russian invasion was not included in the poll events at the time.

The barometer is based on the monthly survey of around 9,000 companies and is considered an important early indicator for the German economy.

Svea Junge

Editor in Business.

  • Follow I follow

"Companies in Germany are expecting hard times," said Ifo President Clemens Fuest.

The sub-index for expectations fell by 13.3 points - and thus even more than when the Corona crisis broke out in March 2020. Companies also assessed their current situation as worse than in the previous month.

However, with a minus of 1.6 points, the decline was comparatively moderate.

In contrast, the mood of the purchasing managers surveyed by S&P Global (formerly IHS-Markit) cooled only slightly.

The barometer for the German economy published on Thursday fell by one point to 54.6 points in March and is still well above the 50 point mark, which signals growth.

"Before Russia invaded Ukraine, the German economy was on course for recovery as supply shortages eased and corona containment measures were eased," said economist Phil Smith of S&P Global. But now it is facing a much more uncertain path Industry is being hit by the disrupted supply chains and falling export demand, compounded by the resurgence of the coronavirus pandemic in China, and the war is adding to already high inflationary pressures, as higher raw material costs have led to an “unprecedented rise” in purchase prices expect the war and its impact on prices, supply chains and demand to impact growth later in the year,” Smith said.

The leading German economic research institutes have already significantly lowered their growth forecasts for this year.

While in December they were still expecting growth in economic output of between 3.5 and 4 percent, they now expect an increase of between 2.1 and 3.1 percent.

On the other hand, they corrected their inflation expectations sharply upwards.

According to their estimates, consumer prices could rise by at least 4.8 percent this year and in the worst case even 6.1 percent.

"The Russian attack is dampening the economy through significantly higher raw material prices, the sanctions, increasing supply bottlenecks for raw materials and intermediate products and increased economic uncertainty," said Timo Wollmershäuser, head of the Ifo economics department on Wednesday.