The researchers expect up to 6.1 percent inflation.
(Photo: IMAGO/Laci Perenyi)
Munich According to the Ifo Institute, the consequences of the war in Ukraine will significantly slow down the German economy in 2022 and at the same time drive inflation extremely high. “We only expect growth of between 2.2 and 3.1 percent this year,” said Ifo economics chief Timo Wollmershäuser on Wednesday about the new forecast by the Munich economists and government advisors.
So far they had expected an increase in gross domestic product (GDP) of 3.7 percent. “The Russian attack is dampening the economy through significantly higher raw material prices, the sanctions, increasing supply bottlenecks for raw materials and intermediate products and increased economic uncertainty.” Inflation is likely to rise faster than expected. The Ifo expects 5.1 to 6.1 percent for 2022 instead of the 3.3 percent expected in December.
Overall, the increase in consumer prices has resulted in a loss of purchasing power of around six billion euros in the current first quarter alone. “At the same time, the full order books in industry and the normalization of Corona should give the economy a strong boost,” said Wollmershäuser. Next year growth will pick up to 3.3 to 3.9 percent and inflation will ease to around 2.0 percent.
Because of the uncertain situation, the Ifo Institute calculated two forecasts, which, among other things, assume a different development of energy prices. This year, they will have a particular impact on private consumer spending, which could rise by between 3.7 and 5.0 percent.
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Business investment in equipment is likely to climb between 0.0 and 3.9 percent. Unemployment, however, will hardly differ, here the Ifo expects 2.26 to 2.29 million people. “However, short-time work is likely to increase significantly in the pessimistic scenario.”
Different scenarios
The optimistic scenario assumes that the price of oil gradually falls from around 101 euros per barrel to 82 euros at the end of 2022, and the price of natural gas falls in parallel from 150 euros per megawatt hour to 108 euros.
In the pessimistic scenario, oil rises to EUR 140 per barrel by May and only then falls to EUR 122 at the end of the year. Natural gas should rise to 200 euros by May and then gradually fall to 163 euros per megawatt hour.
In December, the Ifo Institute had already significantly reduced its GDP estimate from 5.1 percent due to the worsening corona situation and high inflation. Other leading research institutes such as the IfW in Kiel, the RWI in Essen or the IWH in Halle have recently cut their growth forecasts massively due to the consequences of the Ukraine war.
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