German growth weighed down by the Ukraine war in 2022

For the second time in less than a week, Germany’s growth forecast for 2022 has been revised downwards. In fact, the IFO economic institute, one of the most influential in Germany, indicated on Wednesday, March 23, that it now expects an increase in GDP. “between 2.2% and 3.1%” this year, compared to 3.7% in December. In question : “The Russian Invasion of Ukraine”whose “slows down the economy”. It follows in the footsteps of the IfW institute, which last week halved its annual forecasts, expecting a GDP increase of 2.1%.

Germany: The war in Ukraine is expected to impact GDP by €90 billion in 2022 and 2023

On the other hand, “The sharp rise in energy prices is causing high inflation”, commented Clemens Fuest, president of the IFO, during a press conference. The Institute now estimates the increase in prices between “5.1% and 6.1%” this year, compared to 3.3% before. To reduce its energy bill, and at the same time its dependence on Russian fossil fuels, Berlin plans to suspend the planned closure of some of its coal-fired power plants, according to a draft seen by Reuters on Wednesday.

Germany could expand coal-fired power plants to reduce dependence on Russian gas

A year 2022 that, however, had started well

The months of January and February, before the war, were marked, however, by an improvement in the health situation and the lifting of restrictions against Covid-19, stimulating activity, according to the IFO. The economic performance was like this, at the beginning of the year, “better than expected” said Timo Wollmershäuser, head of the institute’s business cycle division. But starting in March, and the Russian invasion, “The economic situation has weakened,” he added.

A situation that should last, due to the “increased prices of raw materials”, and a worsening of “bottleneck” in international markets, detailed the expert. “Uncertainty” and the “Economic sanctions” The Westerners against Russia will also have a strong impact.

Industry, an economic pillar, is particularly affected by this, and has “experienced a decrease in its production in March”, according to experts. The increase in producer prices is already breaking records for manufacturers, with a historical jump of 25.9% in February in one year, for the third consecutive month, according to the latest official figures. Germany now fears a new recession, after GDP in the fourth quarter of 2021 fell by 0.3%.

Germany fears running out of gas next winter

London also lowers its forecasts by -2.2 points

The United Kingdom also announced on Wednesday, March 23, a reduction in its growth forecasts. Yes he is “too soon to know the full impact of the war in Ukraine” On the country side, London now expects 3.8% growth this year, up from a previous estimate of 6%, Chancellor of the Exchequer Rishi Sunak announced in Parliament for his spring budget speech.

The situation could still darken, he warned, and urged the country to prepare “to a deterioration of public finances that could be significant”. This new growth forecast represents a major setback compared to the 7.5% rebound of the British economy in 2021, the highest growth in the G7, after a historic contraction of 9.4% the previous year due to the pandemic. The public economic forecasting body OBR also estimates that inflation could reach a 40-year high in the last quarter of 2022 at 8.7% year-on-year, after accelerating further to 6.2% in February.

With its record growth in 2021, the UK’s European champion

The German and British economies are not the only ones suffering from the consequences of the war in Ukraine. The OECD announced last week that it expects one point less growth worldwide. The IMF will lower its forecast, currently set at 4.4% for 2022. The darkest communication came on March 18 from the EBRD, the IMF and the World Bank who said they were “deeply concerned” evoking “Slower growth, business interruptions” and a particularly severe impact for “the poorest and most vulnerable”.

Also last week, the Bank of France indicated that French GDP would be affected between 0.5 and 1 point. Economists now expect growth of 3.4% in 2022 if the price of a barrel of oil averages over the year $93, but only 2.8% if this price reaches $119. Without the war, he would have raised his growth forecast from 3.6% to 3.9%.

The Banque de France forecasts less growth and more inflation due to the war in Ukraine

(with AFP)