The Federal Ministry for Economic Affairs, led by Katherina Reiche (CDU), currently views the economic situation as stable. According to the monthly assessment released on Friday, overall economic activity at the start of the year remains “comparatively robust” despite the escalation in the Middle East conflict since the end of February.
Certainly, in the short term, preparatory effects-similar to those observed last year following US customs announcements-have played a role. These effects relate to anticipating potential price increases or supply chain bottlenecks for energy and raw materials resulting from the Middle East conflict. This is evident in the strong resurgence of incoming orders in March, particularly in the sector of intermediate goods.
However, signs of a noticeable economic deceleration are accumulating by the close of the first quarter. The confidence indicators for the German economy have noticeably dulled since the start of the crisis. The Federal Ministry noted that the concerns regarding continuously rising energy and raw material prices, combined with increasingly perceptible strain on supply chains, are burdening not only manufacturing companies, especially those in the chemical industry, but are also suppressing demand and business expectations in service sectors that rely more on domestic markets. Overall, rising inflationary pressures and growing uncertainty concerning the conflict’s future development are having a dampening effect.
