The consequences of the war in Ukraine are slowing economic growth in Germany, the German central bank predicts. The Bundesbank also expects sharply higher inflation, mainly due to higher food and fuel prices. The result will be a significant drop in purchasing power and the confidence of German citizens.
The German central bank sees prices rising by 7.1 percent this year, well above the 3.6 percent expected last December. The Bundesbank economists are now also significantly less optimistic for next year and expect economic growth of only 2.2 percent instead of 4.5 percent.
The difference with the predictions of six months ago is unusually large, because the earlier predictions were made before the Russian attack on Ukraine.
The Bundesbank’s expectations are broadly in line with the European Central Bank’s revisions, which showed inflation accelerating on Thursday amid rising fuel and food prices.
Inflation in Germany higher than in the 1980s
“Inflation will be even stronger this year than it was in the early 1980s,” said Bundesbank president Joachim Nagel, referring to an earlier period when inflation in Germany was also painfully high.
According to Nagel, it is therefore important to act decisively now. “Inflation in the euro area will not fall on its own,” he says. “We need monetary policy to reduce inflation.”