Germany: Ifo Business Climate Index Expected to Weaken on Iran War – Commerzbank

Commerzbank economists Christoph Balz and Ralph Solveen said in a preview that Germany's August Ifo Business Climate Index is likely to weaken further, dragged down by renewed uncertainty over the situation in Iran and upward pressure on energy prices. They expect the indicator to fall to 86.0 from 86.6 in July, extending the recent strain on business confidence.

**Geopolitical risks weigh on expectations**

The economists believe that renewed concerns over a war with Iran are directly hitting companies' assessments of future operations. Energy prices have risen accordingly, further eroding corporate cost bases and profit expectations, putting pressure on the expectations component of the Ifo index. This view aligns with the generally weak recent German economic data, showing that external uncertainty is becoming a major obstacle to improving German business sentiment.

**Index trend and market focus**

The July Ifo Business Climate Index came in at 86.6, above the market forecast of 86.0, but showing a loss of momentum from the phased recovery seen earlier in the year. Market reports indicate that the index rose in the first few months of this year, but that was later confirmed as a brief rebound, with a renewed downtrend since spring. If the August data falls to 86.0 as Commerzbank expects, it will reinforce market concerns about insufficient momentum in the German economy in the second half of the year.