The Ukraine war is not just a military and geopolitical turning point. It also changes the economic situation. This affects both the short-term economic development and the medium-term prospects for growth and prosperity.
The previously expected economic recovery will be weakened. There is a risk of stagflation, i.e. a combination of weak growth and high inflation.
Monetary policy cannot change that, but rate hikes by the ECB could be further delayed. Fiscal policy can redistribute the burden of rising prices, but cannot eliminate it.
In the medium term, the diversification of the energy supply will lead to more security of supply, but also higher energy costs. As a location for energy-intensive industries, Germany is in danger of losing ground. Increasing military spending is necessary, but will require higher taxes and cuts in public spending in other areas in the long run.
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The world economy is splitting into a Western bloc and a Chinese-dominated bloc, with Russia as a junior partner. The biggest loser is Russia, but prosperity will also fall in Germany.
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