War and high energy prices: IFO lowers economic forecast again

The Russian attack on Ukraine also has a significant impact on the German economy.

War and high energy prices: IFO lowers economic forecast again

The Russian attack on Ukraine also has a significant impact on the German economy. According to calculations by the IFO Institute, the economic recovery will be less than expected in March. On the other hand, inflation is likely to increase this year.

The IFO Institute for Economic Research has cut its forecast for economic growth this year to 2.5 percent from 3.1 percent expected in March. "The Russian attack on Ukraine with the sharp increase in energy prices is dampening the economic recovery in Germany," the institute said. In the coming year, the IFO Institute expects an acceleration to 3.7 percent. According to the new forecast, inflation is likely to increase to 6.8 percent in 2022 and only fall to 3.3 percent next year. In the spring, the institute still assumed 5.1 percent in its base scenario.

"Economic output is currently still 1 percent below the pre-corona level at the end of 2019," said Timo Wollmershäuser, head of IFO forecasts. "However, we expect a gradual decline in raw material prices and material bottlenecks in the second half of the year."

The loss of purchasing power in private households associated with the high prices was reflected in a decline in goods consumption at the beginning of the year. However, thanks to a noticeable increase in spending on services, private consumption did not fall overall in the first quarter, but remained stable.

The fading of the Corona wave and a normalization of the spending behavior of private households would have been reflected here. Economists expect this normalization to continue over the further course of the year and thus make a significant contribution to the growth of the German economy.

The Institute expects private consumer spending to grow by 4.8 percent this year and 3.0 percent next year. According to the forecast, investments in equipment should only increase by 0.3 percent in 2022, but then by 10.0 percent in 2023. Exports will increase by 2.9 percent this year and 5.3 percent next year, and imports by 6.6 percent in 2022 and 3.8 percent in 2023.

For 2022, the institute expects the number of unemployed to fall from 2.6 million to 2.311 million, which corresponds to a rate of 5.0 percent after 5.7 percent. In the coming year, the number will remain almost unchanged at 2,288 and the rate will again be 5.0 percent. The hole in the state coffers is likely to be halved this year from 131 to 65 billion euros and will only reach 12 billion euros in the coming year. The current account surplus, which has been much criticized internationally, will fall to 181 billion euros this year, from 265 billion in 2021. For the coming year, the IFO Institute expects a surplus of 241 billion euros again.

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