Berlin (Reuters) – Expensive energy, disrupted supply chains, increased uncertainty: The Institute for the World Economy (IfW) has almost halved its growth forecast for Germany due to the consequences of the Ukraine war.
According to the forecast published on Thursday, gross domestic product is only likely to increase by 2.1 percent this year. In December, the IfW had assumed 4.0 percent. “The German economy is once again facing severe headwinds,” emphasized the researchers around Vice President Stefan Kooths. At the same time, they raised their forecast slightly from 3.3 to 3.5 percent for 2023. Overall, economic output in both years was around 90 billion euros lower than previously assumed, “which is mainly due to the Ukraine shock”.
The Essen-based RWI Institute lowered its growth forecast for this year from 3.9 to 2.5 percent, but raised it for 2023 from 2.5 to 3.6 percent. “The war in Ukraine is a heavy burden on the recovery of the German economy from the Corona crisis,” said RWI economic chief Torsten Schmidt. “In the coming months, however, the upward forces are likely to prevail again.” The IWH from Halle is somewhat more optimistic and expects an increase of 3.1 percent in the current year, which would be above the growth of 2.9 percent achieved in 2021.
The Russian invasion of Ukraine is exacerbating the already existing problems for the closely networked German industry: Around 60 percent of companies are reporting additional disruptions in the supply chain and logistics as a result of the war, according to a survey by the Association of German Chambers of Industry and Commerce (DIHK). . “In the meantime, we have received feedback on many channels about a sharp increase in the problems,” said Volker Treier, head of the DIHK for foreign trade. In the nationwide IHK economic survey at the beginning of the year, 84 percent reported moderate to serious delivery problems.
INFLATION RATE EXPECTED TO BE 5.8 PERCENT
“The war in the Ukraine is leading to high raw material prices, new delivery bottlenecks and dwindling sales opportunities,” emphasized the IfW’s economists. “The high commodity prices reduce the purchasing power of disposable income and thus dampen private consumption.” Additional delivery bottlenecks also had a noticeable impact on the industry. The sales opportunities are also likely to be reduced, at least temporarily, due to the sanctions and the increased uncertainty caused by the war. “All of this is affecting the economy in a phase in which the dampening effects of the pandemic are abating and a strong recovery was planned,” said the IfW. The purchasing power in private households, which had been pent up during the pandemic, and the large order backlog in industry would also cushion the shock waves from the Ukraine war.
The IfW experts are not giving the all-clear on prices. “The inflation rate is likely to be 5.8 percent this year, higher than it has ever been in reunified Germany,” it said. Even if raw material prices stop rising and supply bottlenecks gradually subside, the inflation rate will probably remain high at 3.4 percent in the coming year.
The war is unlikely to leave much of a mark on the job market, the economists declared. On the other hand, as public spending increases, budget deficits are likely to remain at elevated levels for longer. DIHK Vice President Ralf Stoffels is calling on the federal government to continue to use the instruments that have been tried and tested in the corona pandemic – from short-time work benefits for badly affected companies to hardship grants and KfW loan programs.