(Bloomberg) — German business confidence plunged to the lowest level since the early months of the pandemic after Russia’s invasion of Ukraine clouded the outlook and caused energy prices to soar.
A business-expectations gauge compiled by the Munich-based Ifo Institute fell to 85.1 in March from 98.4 in February — more than all but one of 27 economists predicted in a Bloomberg survey and the worst reading since May 2020. An assessment of current conditions also deteriorated, though to a lesser extent.
Separate data this week from the European Commission showed a similar slump in consumer sentiment across the 19-member euro zone. Economic confidence also slipped in Italy this month, the according to figures released Friday.
“Sentiment in the German economy has collapsed,” Ifo President Clemens Fuest said Friday in a statement. “Companies in Germany are expecting tough times.”
The war in Ukraine is prompting predictions for slower economic growth and quicker inflation as energy markets and trade are disrupted. The Bundesbank said this week that the virus rebound that was expected in the second quarter may be significantly weaker, though the first three months of 2022 probably saw stagnation rather than contraction.
Soaring prices are weighing on activity by crimping purchasing power, with Germany’s government on Thursday announcing 15 billion euros ($16.5 billion) of extra support measures for consumers and businesses. The package includes a temporary cut in fuel prices, oneoff payments to households and subsidized public transport.
Inflation and the war are acting as drags on manufacturing as supply-chain interruptions worsen and export demand ebbs, according to a separate survey of purchasing managers by S&P Global released Thursday.
Germany announced Friday that it plans to quickly wean itself off Russian fossil fuels, aiming to broadly end purchases of the nation’s oil and coal this year and almost completely halt imports of Russian gas by mid-2024.
(Updates with Italy, German announcement on Russian energy starting in third paragraph.)
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