According to the Bundesbank, the consequences of the Ukraine war are slowing down economic growth in Germany and driving up inflation. With growth of 1.9 percent, the economic recovery after the Corona low should continue, as the Bundesbank forecast on Friday. In December, however, the central bank still assumed that real gross domestic product (GDP) would increase by 4.2 percent in 2022.
The Bundesbank economists are now also significantly less optimistic for 2023 and expect economic growth of only 2.4 percent instead of 3.2 percent. A number of institutes lowered their economic forecasts after the Russian attack on Ukraine. The Bundesbank experts also emphasize that the uncertainty about future economic development is exceptionally high, above all because of the Russian war of aggression.
On the one hand, it is to be expected that the prices for energy commodities will fall again somewhat and supply bottlenecks will gradually ease, explained the Bundesbank. At the same time, private households are likely to convert at least part of the savings they have accumulated during the corona pandemic into consumption and thus stimulate the economy. On the other hand, however, “the extraordinarily high inflation is leading to uncertainty among consumers and weakening their purchasing power”.
According to preliminary figures, the annual inflation rate in Germany jumped to its highest level in almost 50 years at 7.9 percent in May. For the year as a whole, the Bundesbank is now expecting an inflation rate of 7.1 percent based on the so-called harmonized index of consumer prices (HICP), which the European Central Bank (ECB) uses for its monetary policy.
“Consumer prices will rise even more this year than in the early 1980s,” explained Bundesbank President Joachim Nagel. The pressure on prices has recently increased again, which the forecasts now presented do not fully reflect. “If you continue this development, the HICP rate could be well over 7 percent on average in 2022.”
According to estimates by the Bundesbank, the rate of inflation in Germany should gradually fall from next year. The HICP rate could decline to 4.5 percent in 2023 and 2.6 percent in 2024. The ECB is aiming for medium-term stable prices with an inflation rate of 2.0 percent for the euro area as a whole.