German industrial orders unexpectedly plunge in April

Iran war as the main trigger

Observers cite the effects of the Iran war as the main cause of the slump. The Middle East war continues to drive up energy prices and creates uncertainty. The gain recorded in March, however, was attributable to pre-emptive orders, as companies feared price increases in the wake of the Iran war. This pull-forward effect was followed by a counter-movement in April.

Commerzbank chief economist Jörg Krämer drew a clearly pessimistic conclusion from the data. The drop in sentiment indicators such as the Ifo business climate does not suggest a recovery anytime soon, Krämer said. Rather, the German economy is likely to shrink somewhat in the second quarter. He also pointed out: "Der Nahost-Krieg fordert seinen Tribut."

Business sentiment at a low point

Sentiment is also subdued on the part of companies. According to the current DIHK economic survey, a third of industrial firms expect their situation to deteriorate further in the coming months. DIHK economic expert Jupp Zenzen explained that the positive March result was followed in April by a counter-movement as a result of inventory-building effects. A quick recovery is not in sight. In addition, the structural problems at the domestic location are weighing on business, Zenzen continued. The situation in the Middle East conflict, rising oil and gas prices, and the associated uncertainty are dampening the economy.

At least there was a small ray of hope from the eurozone environment: Orders from outside the euro area rose by 0.8 percent. Economists see this as an indication that business outside Europe is running somewhat better than within the currency union. Domestic economic momentum, however, remains weak, and the outlook for the coming weeks is restrained.

Outlook: Production figures on Tuesday

On Tuesday, the figures on industrial production in April will be published. Here, economists expect a slight increase. Whether this can actually stabilize the economy, observers consider doubtful in light of the order data. Orders are considered a leading indicator for future production development; their slump points to a continuation of weak industrial activity.

Industry has long been a problem child of the German economy. Structural issues such as high energy costs, international competitive pressure, and the transition toward climate neutrality weigh on the location. The current setback caused by the Iran war is exacerbating this already tense situation and calls into question the economic forecasts for the year as a whole.