The ongoing war in Iran is weighing heavily on the outlook of German small and medium‑sized enterprises. According to the KfW‑Ifo Mittelstandbarometer, the business climate index for SMEs fell 3.6 points in March, settling at -18.2. This places sentiment well below the zero line, which represents the long‑term average.
The sharpest drag came from expectations about business prospects over the next six months, which slumped 7.6 points to -19.2. In contrast, companies’ assessment of their current economic position improved slightly compared with February. The KfW aggregates results from the Ifo business‑sentiment survey, broken down by firm size and sector.
“Uncertainty is mounting within the private sector. As long as the war in Iran continues, this will persist. Germany’s economic recovery will be delayed and weaker than expected” said Dirk Schumacher, chief economist at KfW.
The decline in the SME business climate spread across all sectors in March. The most pronounced downturn occurred in manufacturing. Even the construction industry managed to stay relatively resilient, only registering a minimal dip. In large companies, the business climate fell even further – by 4.7 points to -21.1 – affecting every industry in that segment as well.
The data also show that the spike in oil and gas prices driven by the Middle‑East conflict is driving companies to anticipate higher future sales prices. This is true for both SMEs and large firms. The magnitude of the increase is reminiscent of the 2020/21 period during the COVID‑19 pandemic. Nevertheless, international supply chains remain largely intact compared with five years ago, and the conflict is geographically constrained. Still, a worst‑case scenario could trigger a self‑fulfilling prophecy: if demand for feared scarce goods suddenly soars, prices could rise further.
