SAFE’s Manager Sentiment Index improved in the first three months of 2026, rising from 0.31 points in January to 0.51 points in February and 0.67 points in March (not yet reflecting the war in the Middle East). The positive sentiment in the 129 earnings conference calls held in the first quarter of 2026 is a sign of firms’ strong 2025 results. Many firms benefited from structural tailwinds in areas such as technology, energy, and infrastructure. Firms reporting strong results also attributed their resilience in times of heightened uncertainty to various forms of diversification, including across markets, products, and supply chains, while others announced plans to expand such efforts. However, following the outbreak of the war in the Middle East on February 28, managers discussed the war in almost every call. Consequently, in April the SAFE Manager Sentiment Index declined to 0.15 points, indicating a markedly subdued management sentiment.
Across sectors, managers presented their firms’ 2025 results during first-quarter earnings calls, often in clearly positive terms. Among the sectors with predominantly positive results was the financial and banking sector, where one manager presented “record-breaking top and bottom-line financial results” while another explained that they had “overdelivered on all targets”. Executives linked strong performance to a supportive environment: higher interest-rate margins and the early effects of the German fiscal stimulus created favorable conditions for revenue growth and profitability. Likewise, in healthcare, one manager described 2025 as “a milestone year… [with an] outstanding step up in profitability”, while in technology, managers stressed that they had “delivered what we promised and even outperformed this ambition.”
Mixed results in the industrial sector
In the industrial sector, however, the picture is mixed. On the one hand, several firms reported strong results, pointing to “the strongest performance in [their] history” and highlighting “strong growth trajectories,” often supported by solid order books and long-term federal government investment commitments. On the other hand, managers consistently emphasized that “the future economic development remains challenging overall” and that they “continue to face weak customer demand, particularly in Europe.” Similarly, producers of consumer goods have a skeptical outlook. Even though some firms described 2025 as “a fantastic year,” underlying demand conditions were deteriorating for others: “2025 was a year that demanded a lot from us. Economic and geopolitical uncertainties, shifting consumer behavior and continued trade disruptions negatively affected market dynamics." Another manager stated that “consumer sentiment caused… reduced traffic and increased price sensitivity”.
The overall picture manifests a growing trend in the German economy. Growth sectors are linked to public expenditure, either in military spending, healthcare, or sectors positively affected by the stimulus. Other industrial and consumer-facing companies meanwhile were struggling due to sluggish demand and high energy prices.
Diversification as a strategic response
Consequently, many companies are reshaping their strategies, with diversification, along the dimensions of (1) target markets, (2) products, and (3) supply chains, emerging as a central pillar of how managers are responding to global uncertainty.
- Target Market Diversification: Many firms emphasized that regional weakness can be absorbed because their operations are already spread across markets, as one manager from the consumer cyclicals sector explained: “We did see a softer demand in Germany and Austria, but this only shows how valuable our diversified international portfolio is.” Another CEO from the healthcare sector attributed the company’s resilience to exactly that: "Our diversified businesses and region[s] [are] giving us significant resilience and strength”. Rather than viewing weak domestic demand as a structural constraint, companies increasingly framed it as a manageable issue within a broader global footprint. In fact, another firm from the consumer cyclicals sector doubled down on this approach, explicitly aiming to “diversify further our regions and our customer base. So, we want to become more international.” These statements describe a shift away from reliance on core European markets toward more globally balanced exposure.
- Product diversification: At the same time, firms are expanding their business portfolios to compensate for the loss of market share in core markets. In the industrial sector, managers repositioned companies toward new areas, including “positioning ourselves in new business fields such as defense, security, energy,” as well as efforts to “explore new high-value business opportunities in the data centre space,” from the technology sector. These shifts were explicitly framed as a way “to put [the company] on several strong profit pools to reduce cyclicality and grow profitability”. However, it remains to be seen to what extent these moves will reduce cyclicality. While managers presented these areas as more stable, many of them are themselves subject to significant fluctuations. Defense and infrastructure spending are heavily dependent on political decisions and government budgets, while data center investments are closely tied to technology cycles and capital expenditure dynamics. Taken together, these dynamics suggest that diversification may not eliminate cyclicality, but rather shift exposure toward different, and in some cases new, sources of volatility.
- Supply chain diversification: Risks of concentrated sourcing have been highlighted since the Covid-19 pandemic, and managers have already responded accordingly. This trend continues. Especially in the energy sector, firms acknowledged that “we cannot afford to simply rely on one single party,” pointing to a reassessment of supplier relationships. Another manager from the utilities sector stated: “What is important is this: it's essential that we do not become dependent on one single country or one single company “.
Unexpected outbreak of war leads to rising uncertainty
Across sectors, managers described the outbreak of the war as largely unexpected. Transport sector executives noted that “we’re a little bit surprised by the various dynamic turns this takes,” while others emphasized that the war “was not or could not be foreseen at that point in time.”
Following the initial shock, March 2026 earnings calls signaled a rising uncertainty, the first reversal after a period of declining uncertainty since the EU-US trade deal in summer 2025. Managers stressed that the war “adds another layer of uncertainty to the macro picture” and that “geopolitical instability… increases market volatility, affects investor sentiment and potentially disrupts global supply chains.”
Too early to assess full impact
Yet, a consistent theme in early March was that the war had not yet translated into immediate effects on firms. Across sectors, firms stressed that it is “too early to assess any potential impact,” and that “everybody is now working through the implications.” At the same time, many companies report that operations remain stable for now. Managers pointed out that “in the short term, we shouldn’t be affected,” that “our supply chain is still intact,” and that there is “no indication” of disruptions so far.
Toward the end of March, however, some firms began to report the first signs of impact. One manager from the technology sector reported “increasing energy prices, volatile oil prices, [and] shortages of certain products,” while one from the consumer cyclicals sector emphasized that “growth slowed in March, likely reflecting much weaker consumer sentiment”. The longer the situation remains unresolved, the more likely firms’ expectations will shift from mild to negative impacts on firm performance.
From strength to caution
Overall, listed companies in Germany entered 2026 from a position of strength, reporting very solid 2025 results supported by cost discipline, diversification, and anticipated positive effects of the fiscal stimulus. Since the outbreak of the war in the Middle East, firms have repeatedly emphasized limited clarity about its long-term economic consequences and the difficulty of assessing geopolitical risks. While economic effects have so far remained limited, the most recent evidence from late March earnings calls indicates that managers are starting to have a more negative outlook.
Alexander Hillert is Co-Director of the SAFE Department “Financial Intermediation” and Professor for Finance and Data Science.
Denise Rößler is Financial Economist at the SAFE Policy Center.
Blog entries represent the authors’ personal opinion and do not necessarily reflect the views of the Leibniz Institute for Financial Research SAFE or its staff.
