The German economy is faltering – already in turmoil – from one crisis to the next, according to a study by the German Institute for Economics (IW), explaining that companies continue to suffer from the multiple effects of the coronavirus pandemic – especially due to chain disruption and staff absences.
More specifically, the same study states that the new restrictions in China make it clear that these risks are still present.
Since February, the burden of the war in Ukraine has been added. These exacerbate existing production disruptions, cause additional sharp increases in production costs and prices, and lead to significant uncertainty.
Above all, the integrated supply of important industrial and energy raw materials today represents a risk that is difficult to calculate. An economic downturn that is just as difficult to assess could result from a sharp cut in gas supplies from Russia.
Even without such an escalation, global economic dynamics will weaken significantly.
By 2022, world production and world trade are expected to increase by 3%. For 2023, the increases will be slightly weaker. All over the world, high prices and uncertainties are eroding consumer and investment demand. In this environment, the pace of economic activity in Germany is also slowing down significantly. Exports are hit by the weakening global economy.
Consumption and investment are under the influence of high inflation rates and supply chain pressures.
The necessary recovery is postponed once again. Growth prospects for 2022 have halved to less than 1%. In 2023, the real gross domestic product in Germany will increase by 2%.
This presupposes, however, that there will be no additional burdens from geopolitical conflicts in the second half of 2022 and that the inflationary effects devouring the economy will subside. After a good 6% this year, consumer prices will rise by 3% in 2023. Production disruptions will have an impact throughout the forecast period, but will decline under certain conditions. Despite these new pressures, the German labor market remains strong.
Employment is recovering again and unemployment will fall below 5% next year. The pandemic and the war will also lead to a high public deficit this year and next. In addition, social security costs are rising. Overall, the public debt ratio will be around 70% during the forecast period.
Source: Capital
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