Higher energy prices are dampening the economy.
(Photo: dpa)
Berlin In view of the consequences of the Ukraine war, the federal government wants to significantly lower its economic forecast for the current year. In 2022, the gross domestic product (GDP) is only expected to grow by 2.2 percent, the Handelsblatt learned from government circles. The Reuters news agency first reported.
In January, the government had still assumed an increase of 3.6 percent. Federal Minister of Economics Robert Habeck (Greens) will present the new forecast on Wednesday.
The uncertainties of the war are high, according to government circles, and the risks for the economy are clear. “A deterioration in the current situation – especially with regard to the energy supply – could dampen economic expectations again,” it said.
With its forecast, the federal government is significantly more pessimistic than the leading economic institutes. They recently published their projection of 2.7 percent GDP growth for the current year.
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The government expects the German economy to make up for a small part of the economic damage in the coming year. For 2023, it increases its growth forecast to 2.5 percent. Previously it was 2.3 percent.
Inflation is expected to be significantly higher
The government representatives see the substantial risks from the Ukraine war as being triggered in particular by the high prices, above all by the rapidly increasing energy costs, and by disrupted supply chains.
According to Reuters, the government expects the inflation rate to be 6.1 percent for the current year. This would almost double the estimate from the end of January. Some normalization is expected for 2023. Then inflation should be 2.8 percent. In January, the forecast was still two percent.
However, the results of a survey published on Monday question whether this significant drop in inflation will come about. A quarter of the 1,100 companies surveyed only expect the main burden from the higher energy prices in the second half of this year. Another quarter does not expect this until 2023, according to the survey by the Ifo Institute on behalf of the Foundation for Family Businesses. The delay is mainly due to the fact that some companies have long-term supply contracts for electricity and gas.
However, the survey makes it clear that parts of the economy already want to draw conclusions from the high energy prices. 46 percent state that they are postponing investments. However, only six percent of the companies consider production stops or relocations of business premises abroad to be likely. Almost 90 percent assume that they will have to increase their own prices for their products. Eleven percent are considering giving up energy-intensive business areas, 14 percent are considering job cuts in Germany.
Ifo business climate index rises surprisingly
Despite these burdens, the mood in the German economy has surprisingly improved. The Ifo index for the business climate climbed to 91.8 points in April, as the institute announced on Monday. In March, the index, which is based on a survey of 9,000 managers, was at 90.8 points.
Economists polled by Reuters had expected a decline. “After the initial shock of the Russian attack, the German economy is showing resilience,” said Ifo President Clemens Fuest.
Fritzi Köhler-Geib, chief economist at the state-owned KfW development bank, explained that the companies had corrected part of the shock crash from the previous month. In other words: in March, directly after the outbreak of the Ukraine war, the managers initially saw the consequences as more severe than they now appear at second glance.
However, Ifo President Fuest pointed to a dangerous development: “The construction industry, which has been a pillar of the economy in recent years, is collapsing – supply bottlenecks and massive price increases are having an effect.”
In the past, the construction sector has often developed largely independently of the general economic situation. During the corona pandemic, the industry supported the economy, which was otherwise collapsing in many areas. But the current situation no longer seems to stop at the construction site. In construction, the business climate has fallen to its lowest level since May 2010. Sector business expectations have never been so pessimistic since reunification.
More: The Bundesbank expects an energy embargo to have drastic consequences.