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Economists expect even less growth and more inflation because of the Ukraine war

2022-06-15T12:10:48.058Z


Russia's attack on Ukraine is severely weakening the economic recovery after the corona crisis in Germany. Several economic institutes have lowered their forecasts significantly.


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Container ships in Hamburg: economy still below the pre-corona level

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Daniel Reinhardt / dpa

High energy prices and persistent delivery problems: The Ukraine war and its consequences continue to weigh heavily on the German economy. Several economic institutes are therefore more pessimistic about the German economy and have therefore downgraded their forecasts.

"The high inflation is dampening the recovery of the economy," said Ifo economic chief Timo Wollmershäuser.

Economic output is still one percent below the pre-corona level at the end of 2019. After all, the Munich researchers expect "a gradual decline in raw material prices and material shortages in the second half of the year." In July or August, Europe's largest economy will be before the outbreak restore the level reached during the corona pandemic.

The Ifo Institute corrected its growth forecast for the current year to 2.5 percent, previously the experts had assumed 3.1 percent.

The Essen-based RWI even reduced its forecast from 2.5 to 1.9 percent.

The economists at the Kiel Institute for the World Economy (IfW) stayed with their 2.1 percent forecast in March, but lowered the outlook for 2023 from 3.5 to 3.3 percent - while the Ifo Institute then with 3.7 percent calculates.

The Ukraine war and corona lockdowns in the most important trading partner China are considered the greatest risks for the German economy.

Both contribute to the fact that consumer prices could rise more sharply this year than ever before in reunified Germany: goods and services are likely to rise by an average of 7.4 percent, the IfW researchers predict.

In March they had assumed only 5.8 percent.

They also raised the forecast for 2023 sharply, from 3.4 to 4.2 percent.

It would then still be more than twice as high as the European Central Bank (ECB), which wants to keep the inflation rate at two percent.

According to Wollmershäuser, the loss of purchasing power in private households associated with the high prices led to a decline in goods consumption at the beginning of the year.

Thanks to a noticeable increase in expenditure on services, however, private consumption did not fall overall in the first quarter, but remained stable.

Services have become the mainstay of growth in the current year: the normalization of consumption could make a particular contribution to the growth of the German economy.

Inflation threatens to solidify

"The current inflationary pressure is above all a consequence of the massive global fiscal programs during the pandemic phase," said IfW Vice President and Economic Director Stefan Kooths.

He criticized the monetary policy steps taken by the European Central Bank (ECB) to date as "much too late" and "too timid".

This increases the risk “that inflation expectations will solidify monetary devaluation”.

Despite the high inflation, the RWI Institute does not assume that wages and prices will drive each other up.

Wages have recently risen faster than the average in recent years.

At the same time, inflation is picking up sharply and increasing the cost of living significantly.

It is not to be expected that future wage increases will keep pace with the inflation rate.

Despite the generally difficult economic situation, the Ifo Institute expects fewer unemployed.

Their number is expected to fall by around 300,000 to a good 2.3 million this year and fall again slightly in 2023.

The hole in the state coffers is likely to be halved this year – from 131 to 65 billion euros.

In 2023, the deficit should be just twelve billion euros.

Delivery bottlenecks and inflation are also having an impact on a global level: the strict no-Covid policy of the Chinese government alone will cost the global economy 0.2 percentage points of growth this year, according to the IfW.

Overall, global economic output will increase by three percent this year, so the IfW has revised its forecast downwards by 0.5 percentage points.

For the coming year, the IfW reduced its forecast by 0.4 points to 3.2 percent.

Apr/AFP/Reuters

Source: spiegel

All business articles on 2022-06-15

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