German growth weighed down by war in Ukraine in 2022

For the second time in less than a week, German growth forecasts for 2022 have been revised down. The IFO economic institute, one of the most influential in Germany, did indicate on Wednesday, March 23, that it now counts on GDP growth. “between 2.2% and 3.1%” this year compared to 3.7% in December. Discussed : “Russian invasion of Ukraine”WHO “slows down the economy”. He is following in the footsteps of the IfW institute, which halved its full-year forecasts last week, counting on GDP growth of 2.1%.

Germany: War in Ukraine expected to affect GDP by 90 billion euros in 2022 and 2023

Furthermore, “The sharp rise in energy prices causes high inflation”, – commented Clemens Fuest, president of IFO, during a press conference. The Institute is now estimating price increases between “5.1% and 6.1%” this year compared to 3.3% earlier. To reduce its electricity bills and at the same time its dependence on Russian fossil fuels, Berlin plans to suspend the planned shutdown of some of its coal-fired power plants, according to a draft Reuters was able to see on Wednesday.

Germany may expand coal-fired power plants to reduce dependence on Russian gas

2022 is off to a good start

According to the IFO, January and February, the pre-war months, however, were marked by an improvement in the health situation and the lifting of restrictions against Covid-19, which stimulated activity. Thus, the economic indicators at the beginning of the year were “better than expected” said Timo Wollmershäuser, head of the institute’s business cycles department. But since March and the Russian invasion, “The economic situation has worsened” he added.

A situation that must continue due to “rising prices for raw materials”, and deterioration “narrow places” in international markets, the expert specified. “Uncertainty” And “economic sanctions” Westerners against Russia will also have a strong influence.

Industry, which is the backbone of the economy, is particularly affected by this. “experiencing a decline in production in March”, according to experts. Producer price increases are already breaking records for producers, rising 25.9% year-on-year in February for the third month in a row, according to the latest official data. Germany now fears a new recession after GDP fell by 0.3% in the fourth quarter of 2021.

Germany fears it will run out of gas next winter

London also lowers its forecasts by -2.2 points.

The United Kingdom also announced on Wednesday 23 March that it is cutting its growth forecasts. If he “It is too early to realize all the consequences of the war in Ukraine” Nationwide, London now expects growth of 3.8% this year from a previous estimate of 6%, Chancellor of the Exchequer Rishi Sunak told Parliament in his spring budget speech.

The situation could get worse, he warned, urging the country to prepare “to a deterioration in the state of public finances, which may be significant.” This new growth forecast represents a major setback to the UK economy’s 7.5% recovery in 2021, the strongest growth in the G7, after a historic 9.4% contraction the previous year due to the pandemic. State economic forecasting body OBR also estimates that inflation could reach a 40-year high in the last quarter of 2022 at 8.7% year-on-year after accelerating further to 6.2% in February.

With its record growth in 2021, the European champion of the United Kingdom

Not only the German and British economies suffered from the consequences of the war in Ukraine. The OECD announced last week that it expects one point less growth globally. The IMF will lower its forecast, which is currently set at 4.4% for 2022. The bleakest message came on March 18 from the EBRD, IMF and World Bank, who said they “deeply concerned” causing “growth slowdown, trade disruptions” and a particularly severe impact on “the poorest and most vulnerable”.

Also last week, the Bank of France indicated that France’s GDP would suffer 0.5 to 1 point. Economists now expect growth of 3.4% in 2022 if the price of a barrel of oil averages $93 for the year, and only 2.8% if this price reaches $119. Without the war, he would have raised his growth forecast from 3.6% to 3.9%.

Bank of France predicts less growth and more inflation due to war in Ukraine

(with AFP)