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The war in Ukraine is affecting the growth of the German economy. If Germany cuts off gas supplies from Russia, even an economic contraction is expected.
According to Germany’s major economic institutes, Germany’s Gross Domestic Product is expected to grow by just 2.7 per cent this year. This is made known in the spring forecast drafted for the federal government. The fall report projected a 4.8 percent increase.
“The recovery from the corona crisis has been hampered by the war in Ukraine, but it still prevails,” said Stefan Kooths, vice president and head of economic conjuncture at the Kiel Institute for World Economy (IfW). On the other hand, the forecasts for 2023 were adjusted in terms of growth, from 1.9 to 3.1%.
Stopping gas supplies could make the situation worse
However, in the event of an immediate halt to Russian gas supplies, the economic picture is much bleaker. In such a case, the economy is expected to grow by only 1.9 percent this year and even shrink by 2.2 percent in 2023.
“If gas supplies stop, the German economy risks experiencing a deep recession,” warns Kooths. “In terms of economic policy, it would be about supporting marketable production structures without stopping structural changes,” Kooths said.
Assistance to private economies to mitigate high energy prices must be provided in a highly focused manner. “If such aid is given on a broad front, inflation will deepen and the effect of regulating energy prices will be undermined,” the economist warned. This, in turn, would exacerbate the problems of low-income families.
The institute spring report serves as the basis for the federal government for its forecasts. At the end of March, the so-called “wise economics” drastically lowered their growth forecast for 2022, from 4.6 percent to just 1.8 percent, due to the war in Ukraine./DW
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