The German government expects the economy to suffer a significant slowdown in the second quarter as a result of the Iran war. The Ministry for Economic Affairs said in its monthly report that the conflict is driving up energy and raw material prices, creating uncertainty for businesses and households.
The prediction comes less than a month after the government halved its economic growth forecast to 0.5% for the whole year. The ministry said further development will depend on how long the Middle East conflict lasts and how long trade routes and production capacities remain impaired.
"But even after the situation eases, the consequences for energy and raw materials prices and supply chains are likely to remain noticeable for longer," it said.
Europe's largest economy had a stronger-than-expected start to the year, with GDP growing 0.3% in the first quarter compared with the previous quarter. However, high energy costs have caused Germany's energy-intensive industries to scale back production and cut tens of thousands of jobs.
According to the Federal Statistical Office, since February 2022, production fell by 15.2% in the chemicals, paper, glass, and metal manufacturing sectors. The number of workers dropped by 53,300, or 6.3%. The decline was most pronounced among manufacturers of concrete, cement, and sand-lime brick products. One exception was petroleum processing, which increased production by 24.6% and created 1,000 new jobs.
Meanwhile, sentiment in Germany's housing construction sector dropped in April to its lowest level in four years. The Ifo Institute's business climate index for the sector plummeted from minus 19.3 points in March to minus 28.4 points last month.
"Geopolitical uncertainty is now also weighing on residential construction in Germany," said Ifo's Klaus Wohlrabe. "With fragile supply chains and rising financing costs, several risks are hitting the construction sector simultaneously."
In other news, reports of a dead whale off the Danish coast have raised questions about the fate of a humpback dubbed Timmy that spent weeks languishing off Germany's Baltic coast. State Environment Minister Till Backhaus said it is unclear if it is the same animal, and cautioned against speculation.
Source: www.dw.com