German GDP forecasts slashed over war in Ukraine

Germany’s economic growth will come in weaker than expected in 2022 as shock waves from the war in Ukraine temper tailwinds from easing coronavirus restrictions and easing supply bottlenecks, according to three top economic institutes.

The three institutes – the IfW, the RWI and the IWH – gave forecasts ranging from 2.1% to 3.1% on Thursday.

The German government most recently forecast 2022 growth of 3.6%, up from 2.9% last year.

The IfW slashed its forecast by nearly half, to 2.1% from 4, but said that consumers’ pent-up purchasing power and a backlog of industrial orders would soften the blow of the war in Ukraine on the economy.

“The German economy is once again facing strong headwinds,” said IfW, citing new supply bottlenecks, high raw material prices and dwindling sales opportunities caused by the war.

A survey of businesses by Germany’s Chambers of Industry and Commerce (DIHK) on Thursday found that 60% of companies were experiencing more supply chain disruptions due to the war.

DIHK added that companies would not call Western sanctions against Russia into question: “For many of them it’s simply unbearable to do business in a country from which such a war of aggression emanates,” said DIHK vice president Ralf Stoffels.

The RWI revised down its previous forecast in December, of 3.9% growth, to 2.5%, while the IWH predicted growth of 3.1%.

RWI noted that its forecasts were based on the assumption that there would be no further sanctions on Russia, and Russian gas deliveries to Germany would continue.

For 2023, the RWI and IfW raised their growth forecasts to 3.6% and 3.5%, respectively, while IWH predicted 1.5% growth.

The institutes also saw the inflation rate reaching between 4.8% and 5.8% in 2022, chiefly due to high energy prices.

All three institutes are part of a group that advises the German government.