Ukraine war and pandemic - economic growth collapses

Photo by Karollyne HubertThe five leading economic research institutes have significantly lowered their economic forecast for this year. They expect growth of only 2.7 percent instead of 4.8 percent as in the fall, they announced on Wednesday. Inflation will be 6.1 percent this year, according to their estimate. "Decisive factors for the revision are, in addition to the Ukraine war, the unfavorable course of the pandemic in the past winter half-year," the economic research institutes explained. In the coming year, they expect gross domestic product (GDP) to grow by 3.1 percent.

The institutes also calculated the impact on Germany's economy of an immediate interruption in Russian gas supplies: in that case, the Federal Republic would plunge into a "sharp" recession, they explained. "In terms of economic policy, it would then be a matter of supporting marketable production structures without halting structural change."

For the gas-intensive industries, this will accelerate even without a boycott, since dependence on Russian supplies, which have been available at favorable prices up to now, is to be overcome quickly one way or another.

The economists advised policymakers to "only very selectively" dose the aid for private households to cushion high energy prices."If such aid is handed out across the board, it will additionally drive up inflation and torpedo the important steering effect of higher energy prices," they warned. This in turn exacerbates the problems of low-income households and increases overall economic costs, they said.

The Leibniz Institute for Economic Research in Essen (RWI), the Leibniz Institute in Halle (IWH), the German Institute for Economic Research (DIW), the Ifo Institute in Munich and the Kiel Institute for the World Economy (IfW) are involved in the spring forecast.Their report serves as the basis for the German government's own forecast. As recently as the end of March, the so-called economic experts drastically lowered their growth forecast for 2022 from 4.6 percent to just 1.8 percent due to the war in Ukraine.



Photo by Karollyne Hubert

 


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