Economists: Only moderate growth, high inflation

Created: 06/15/2022Updated: 06/15/2022 2:48 p.m

Construction cranes on a large construction site: The Ifo Institute expects economic growth of 2.5 percent for this year, the IfW is more cautious with 2.1 percent.

© Karl-Josef Hildenbrand/dpa

Regardless of the Ukraine war, the pandemic and delivery problems, the German economy is not threatened by a crisis this year, economists believe.

However, the high inflation could last longer than expected.

Munich/Kiel - Two leading economic research institutes are spreading moderate economic optimism for this year: Despite the Ukraine war, Germany is not threatened with a slump in economic output this year, and unemployment is also expected to fall further.

However, both the Munich Ifo Institute and the Kiel Institute for the World Economy (IfW) raised their inflation forecasts on Wednesday.

Ifo expects economic growth of 2.5 percent for this year, the IfW is more cautious with 2.1 percent.

Last year, both institutes predicted a faster recovery after the corona pandemic, but the Ukraine war is slowing down the economy.

"The German economy is facing a difficult recovery phase," said IfW Vice President Stephan Kooths.

But even if the Russian attack on Ukraine is slowing down the catch-up effect, it is not bringing growth to a standstill.

After two years of Corona, Germany is still weaker than before the pandemic began.

"Economic output is currently still one percent below the pre-corona level at the end of 2019," said Ifo economic chief Timo Wollmershäuser according to the announcement.

Billions in savings

So there is a need to catch up, for the coming year both institutes are still predicting strong growth of over three percent: the IfW 3.3 percent, Ifo 3.7.

The assessments of economists in North and South differ: Ifo increased its forecast for the next year, IfW lowered it.

Private households should make a significant contribution to the strong increase in gross domestic product. After two years of reduced consumption due to corona, they are sitting on high additional savings in the three-digit billion range and could spend more again.

A second factor is the high order backlog in the industry.

Both institutes expect inflation to be higher than it has been for decades.

In this respect, too, Munich is more optimistic than Kiel: The Ifo Institute now expects a rate of 6.8 percent, and the IfW even 7.4 percent.

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Number of unemployed falls

IfW Vice-President Kooths blamed the combination of several factors for the rise in prices: limited supply due to supply bottlenecks combined with high demand and, in some cases, further increases in energy prices.

"All of this is a cocktail that is now causing prices to rise more than almost at any time in post-war history," said Kooths.

The scientist warned of the danger that currency devaluation would become entrenched.

However, both institutes continue to assume an employee-friendly labor market: According to the Ifo Institute, the number of unemployed could fall from 2.6 to 2.3 million this year, and the unemployment rate would thus fall from 5.7 to 5.0 percent.

The IfW expects a slightly higher rate of 5.1 percent.

As always, all forecasts are subject to change.

dpa