Because Germany will do worse than expected. Munich Ifo Report
War and inflation threaten the recovery: what the forecasts of the Ifo institute in Munich say about the economy of Germany. Pierluigi Mennitti's article from Berlin
Just when the economy seemed on the verge of putting the crisis caused by the pandemic behind it, Putin's guns reopened negative scenarios and brought back all the numbers on Germany's growth estimates.
The economic forecasts of the Ifo institute in Munich are latest in chronological order, following the equally pessimistic reports of other economic research institutes in the country. “The Russian attack on Ukraine is hindering economic growth and accelerating inflation in Germany,” said Timo Wollmershäuser, chief economist of the Bavarian center, “and for the current year we only expect growth of between 2 , 2 and 3.1% ". This is a significant slowdown compared to the winter estimates of last December, when the Ifo forecast growth of 3.7% for the German economy. On the contrary, they warn in Monaco, inflation is likely to rise faster than expected: estimates range from 5.1 to 6.1%, instead of the 3.3% forecast in December.
"The Russian attack is holding back the economy through significantly higher commodity prices, sanctions, increasing bottlenecks in the supply of raw materials and intermediate products and increased economic uncertainty," added Wollmershäuser. And overall, in the first quarter alone, purchasing power of around 6 billion euros was lost due to the increase in consumer prices. The war occurred when the economy had really started a robust post-Covid recovery, which according to the IFO will remain the dominant motif in the coming months, albeit slowed down by war uncertainties: "At the same time, the robust portfolio of orders in industry and normalization due to the easing and dismantling of pandemic restrictions should give the economy a strong boost ”. Therefore, the more robust recovery moves a little forward, to 2023, the year for which the IFO modifies the previous forecasts upwards: for GDP it will go from 3.3% of the previous estimate to 3.9%. while inflation should settle back to around 2%.
Given the uncertainty of the situation, the Ifo has developed two forecast models that assume different trends in energy prices, which this year will have an impact above all on spending by private consumers. The optimistic scenario assumes that the price of oil gradually decreases from the current 101 euros per barrel to 82 euros at the end of the year, and the price of natural gas falls in parallel from 150 euros per megawatt hour to 108. In the pessimistic scenario, oil rises to 140 euros. per barrel in May to then drop to 122 at the end of the year. Natural gas is expected to rise to € 200 by May and then gradually drop to € 163 per megawatt hour.
A slowdown in corporate investments in equipment is expected which, depending on the scenario that will occur, could either stagnate or increase by up to 3.9%. No significant impact is expected on unemployment, which will remain low, also given the shortage of manpower affecting many productive sectors. However, it is likely that short-time work will also grow significantly should the pessimistic scenario prevail.
The winds of war also push down the analyzes of the Institut für Weltwirtschaft (IfW) in Kiel, which almost halves the growth forecasts for 2022 GDP compared to winter estimates: in fact, it goes from the previous 4% to 2.1%. A decline not too rewarded by the upward adjustment of the estimates for 2023, which go from the winter forecast of 3.3% to the spring forecast of 3.5%. A sign that the long wave of difficulties will not be absorbed anytime soon.
"The German economy is once again facing strong headwinds", ifW analysts say, "the war in Ukraine leads to high commodity prices, new supply bottlenecks and diminishing sales opportunities". The chain is inevitable: the high prices of raw materials reduce the purchasing power of disposable income and therefore dampen private consumption. Further delivery bottlenecks are also having a major impact on the industrial sector and sales opportunities are deteriorating, at least temporarily, due to sanctions and increased uncertainty caused by the war.
"All of this is hitting the economy at a time when the curbing effects of the pandemic are easing and a strong recovery is expected: high repressed purchasing power in private households and a large stockpile of orders in industry are still attenuating the waves. impact of the war in Ukraine ". As a result, "the recovery is likely to continue this year, albeit at a significantly slower pace than was expected in the winter."
Another element to be kept under observation is inflation, they warn in Kiel, which this year should reach 5.8%, a level never reached in reunified Germany. "Even if commodity prices stop rising and supply bottlenecks gradually ease, inflation is likely to remain high at 3.4% over the next year, not least because the most recent increases in producer prices are reaching consumers only gradually ". Also for Kiel no reflection on unemployment: "The war is leaving little or no trace on the labor market and public spending will increase, so that budget deficits will remain at high levels for longer".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/economia-germania-previsioni-ifo/ on Wed, 23 Mar 2022 09:24:33 +0000.