Status: 03/30/2022 10:30 am
The German Council of Economic Experts drastically lowered its economic forecast for this year. Economic experts warn that Germany must arm itself against a freeze in Russian energy supplies.
According to the German Council of Economic Experts, the Russian war of aggression against Ukraine has drastically worsened the general economic conditions of the Federal Republic. The pundits, colloquially called “economic savants”, have greatly reduced their economic forecasts.
For the current year, economists expect only a 1.8 percent growth in Gross Domestic Product (GDP), in 2023 GDP is expected to increase by 3.6 percent. For comparison: in their latest economic estimate in November, economic experts predicted growth of 4.6% for 2022.
Germany must end its dependence on Russia
The Council of Experts, which advises the federal government on economic policy issues, also issued a clear warning regarding the Federal Republic’s heavy dependence on Russian energy supplies. Stopping these deliveries risks the German economy entering a deeper recession and inflation rising further, warned Monika Schnitzer, a member of the German Council of Economic Experts.
“Germany must immediately put all the levers in motion to arm itself against a possible freeze in Russian energy supplies and, at the same time, quickly end its dependence on these imports,” said Volker Wieland, a member of the German Council of Economic Experts. In this way, energy security in Germany can be increased in the long term – even if it means that energy prices remain high for some time.
Inflation: The risk of a wage-price spiral is rising
Due to the sharp rise in energy prices, the Council of Economic Experts also expects significantly higher inflation rates in the Federal Republic: economists now expect 6.1% for 2022 and 3.4% for 2023. Economists had already estimated the inflation for the current year at 2.6%.
Veronika Grimm, member of the Advisory Board, emphasized that high inflation and rising inflation expectations are also likely to affect salary negotiations. “The impetus for wage demands is likely to increase from the second half of 2022 onwards. This increases the risk of a wage-price spiral.”
For the year 2022, the German Council of Economic Experts expects wages actually paid by companies (real wages) to grow by 2.5%. Next year, wages are expected to increase by 4.4%.
Economics more pessimistic than IfW and ifo
Recently, several institutes have revised their upward and downward inflation forecasts for GDP in light of delivery bottlenecks and rising energy prices.
However, the experts’ forecasts were not as pessimistic as those of the German Council of Economic Experts. For example, the Kiel Institute for the World Economy (IfW) expects GDP growth of 2.1% for 2022. The ifo Institute in Munich expects growth of between 2.2 and 3.1 percent.
Economists expect less growth and more inflation
Hans-Joachim Vieweger, ARD Berlin, March 30, 2022 10:35 am