German Investor Expectations Index Declines Sharply, Iran War Threat Weighs on Economic Recovery

MaticHoleFiller · 2026-03-25T15:23:58+00:00

After the outbreak of the Iran war, German economic recovery expectations cooled, investor confidence deteriorated, and the ZEW Sentiment Index fell sharply to -0.5, below expectations. Meanwhile, rising energy prices intensified inflation pressure, German government bond yields declined, and market expectations for rate hikes diminished.

MaticHoleFiller

2026-03-25 15:23:58

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As the Iran conflict erupts, market expectations for a strong recovery in Germany, Europe’s largest economy, have cooled, and investor confidence in the country has deteriorated far beyond expectations.

In March, the ZEW Institute’s Sentiment Index dropped from 58.3 in February to -0.5. This figure was below all forecasts in a Bloomberg survey (previously expected to be 39.2) and marked the lowest level since April last year when Donald Trump first announced tariffs.

However, indicators measuring the current situation surprisingly improved.

“Escalating tensions in the Middle East have driven up energy prices and increased inflation pressures,” said Achim Wambach, President of ZEW, in a statement on Tuesday. “This raises the risk of a slowdown in Germany’s economic recovery. The ultimate impact will depend on the intensity and duration of the conflict.”

German government bonds continued their rally, with the 10-year yield briefly falling by 3 basis points to 2.92%. Traders also reduced their expectations for rate hikes, with the interest rate swap market indicating about 39 basis points of monetary policy tightening by the end of the year.

Recommended reading: German industrial data falters; Iran conflict risks remain to be seen.

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Editor: Liu Mingliang

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