Ukraine war forecast to halve 2022 German growth to 2.1%

Berlin (dpa) – A leading economic institute warned on Thursday that Russia’s war in Ukraine was expected to halve German growth in 2022, as industry representatives lined up to point to the impact of the conflict on Europe’s biggest economy.

According to a forecast published by the Kiel Institute for the World Economy (IfW), Germany’s gross domestic product is now expected to increase by 2.1% over the course of the year, rather than a previously forecast 4%.

In addition, annual inflation is set to rise to 5.8%, the institute said – the highest level since German reunification in 1990.

War in Europe was dealing a blow to Germany’s recovery from the Covid-19 pandemic, the IfW said, noting that a return to pre-crisis levels was now not expected until the second half of the year.

It said production capacities would not be fully utilized until the end of the year, meaning that economic output would not reach its full potential for the time being.

Part of the lost production will be made up for in 2023, however, according to the institute’s predictions. As a result, slightly stronger growth of 3.5% – rather than a previously forecast 3.3% – is now expected for next year.

Economic upheaval caused by the conflict in Ukraine is likely to cost Germany around €90 billion ($99.4 billion) in economic output this year and next, according to the report.

“The economy in Germany as well as worldwide is being exposed to opposing forces,” said Stefan Kooths, vice president of the IfW, a leading economic think tank.

“The strong upward and catch-up effects following the abolition of most infection control measures are contrasted by the shockwaves resulting from the Ukraine war.”

Meanwhile, the Association of German Chambers of Commerce and Industry (DIHK) expressed its concerns over the conflict, which it said would dramatically worsen material shortages already felt by German industry.

Even prior to the outbreak of war on February 24, 84% of German industrial companies had reported medium to considerable delivery difficulties, the DIHK said, citing the results of a survey at the start of the year.

“In the meantime, we are receiving feedback across many channels about a sharp increase in problems,” said Volker Trier, DIHK’s chief executive of foreign trade.

Around 60% of companies are now reporting additional disruptions in supply chain and logistics as a result of the war, according to the industry group.

“The stress on the economy is very high at the moment,” said DIHK vice president Ralf Stoffels, adding that no medium-sized company can absorb the rising costs of energy and raw materials.

Stoffels manages BIW Isolierstoffe GmbH, a company based in the western state of North Rhine Westphalia that processes silicone rubber.

“Without us, no car would come off the assembly line and no heating system would work,” he said.

Bottlenecks in raw materials have existed since late summer, but the war has now exacerbated the situation, he added, noting that some delivery times had become “gigantic.”

As an example, Stoffels said that if the warning light on a forklift truck is broken, which has to function according to German law, the company must wait 24 weeks for a replacement part.

DIHK foreign trade chief Treier said that Germany was significantly dependent on Russian supplies of nickel and titanium.

He predicted that increased prices for raw materials and energy would ultimately be felt by consumers. Almost 20% of the companies surveyed by the DIHK assessed their financial situation as problematic.