The Federal Ministry for Economic Affairs, led by Katherina Reiche (CDU), currently assesses the economic situation as stable. According to the monthly economic outlook published Friday, economic activity at the start of the year remains “comparatively robust despite the Middle East conflict that escalated at the end of February”.
Ministry reports indicated that, in the short term, “pre-effect boosts” played a role, similar to what was observed last year following US tariff announcements. These boosts were related to anticipated future increases in prices and potential supply chain bottlenecks concerning energy and raw materials due to the Middle East conflict. This is further suggested by the newly strong increase in incoming orders for raw materials during March.
However, warning signs of a noticeable economic slowdown are accumulating as the first quarter concludes. The mood indicators for the German economy have visibly soured since the start of the Iran crisis. The rising concern over continued increases in energy and raw material prices, coupled with the growing supply chain strain, is negatively impacting not only manufacturing sectors, especially the chemical industry, but also service areas that are more reliant on domestic markets. According to the Ministry, rising inflationary pressure and growing uncertainty regarding the future development of the conflict are dampening overall demand and, consequently, business expectations.