Germany: Cuts down GDP estimates due to war

The German government’s economic advisory council has cut estimates for the GDP of Europe’s largest economy, citing economic uncertainty over the Russian invasion of Ukraine.

The advisers, whose estimates guide the German government in setting fiscal policy, cut estimates for 2022 GDP in Germany to 1.8% from 4.6%, adding that the pre-pandemic economic level will not be reached. before the third quarter of the year.

In 2023, GDP is expected to grow by 3.6%, according to estimates by the four advisers.

“Before the outbreak of the war, rising industrial production and a strong labor market spoke of an economic recovery. The Russian war against Ukraine has now drastically worsened economic conditions,” they said in a statement.

Russia’s invasion of Ukraine on February 24 further affected supply chains already hit by the pandemic, and a sharp rise in gas and crude oil prices is affecting companies and private consumption, they added.

As a result, the council expects inflation to reach 6.1% in 2022 before falling to 3.4% next year.

At the same time, the further impact of the war is difficult to assess, experts say, adding that an escalation of the conflict and additional sanctions could have a significantly greater impact on German and European economies.

“Germany must immediately prepare for a possible shutdown of Russian energy supplies, and at the same time quickly end its dependence on these imports,” said council member Volker Wieland.

In this way energy security in Germany could be increased in the long run, even if it meant that energy prices would remain high for some time.