Economic Outlook March 2022
Rus­sia's war of ag­gres­sion against Ukraine and en­ergy prices dras­ti­cally worsen the eco­nomic out­look

ECO­NOMIC OUT­LOOK FOR 2022 AND 2023

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(SUM) The Russ­ian war of ag­gres­sion against Ukraine is wors­en­ing the out­look for the global econ­omy and cre­at­ing great po­lit­i­cal un­cer­tainty. Per­sis­tently high prices for en­ergy and raw ma­te­ri­als and the loss of food and fer­tiliser ex­ports from Ukraine and Rus­sia are likely con­se­quences. Eco­nomic growth will slow down con­sid­er­ably, par­tic­u­larly in the Eu­ro­pean Union. Heavy re­liance on im­ports of Russ­ian en­ergy poses a par­tic­u­lar risk for some Mem­ber States. Cuts to sup­ply or an em­bargo on im­ports from Rus­sia can­not be ruled out.

Be­fore the out­break of the war, global eco­nomic de­vel­op­ment was ro­bust. While the spread of the Omi­cron vari­ant of the coro­n­avirus (SARS-​CoV-2) had re­sulted in record lev­els of new in­fec­tions in many coun­tries, the eco­nomic fall­out from the re­peated waves of the pan­demic is fad­ing. On the other hand, Rus­sia's war of ag­gres­sion against Ukraine and the sanc­tions im­posed in re­sponse are ex­ac­er­bat­ing the dis­rup­tions of global sup­ply chains and in­creas­ing in­fla­tion­ary pres­sure. These supply-​side dif­fi­cul­ties are likely to still en­counter con­sumer de­mand that re­mains healthy. Contact-​intensive ser­vices, in par­tic­u­lar, are ex­pected to re­cover fur­ther in the sec­ond half of 2022. With con­tin­ued nor­mal­i­sa­tion of the con­sump­tion stuc­ture be­tween goods and ser­vices, pandemic-​related bot­tle­necks, at least, should play less of a role in the course of the year. Spend­ing of some un­planned sav­ings that have been ac­crued due to the pan­demic and a solid labour mar­ket are likely to pro­vide stim­uli for growth.

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GDP in Germany and the euro area

The GCEE ex­pects GDP growth rates in the euro area of 2.9 % for 2022 and 2023. As the basis for this pro­jec­tion, the GCEE as­sumes that en­ergy prices will re­main high in the fore­cast pe­riod but that en­ergy sup­ply from Rus­sia will not be halted. Ger­many's GDP is likely to in­crease by 1.8 % in 2022 and 3.6 % in 2023. The GCEE ex­pects in­fla­tion rates of 6.2 % and 2.9 % (HICP) in the euro area in 2022 and 2023, re­spec­tively, and of 6.1 % and 3.4 % (CPI) in Ger­many. Due to heavy re­liance on Russ­ian en­ergy ex­ports, there is a con­sid­er­able risk of lower eco­nomic out­put and even a re­ces­sion with much higher rates of in­fla­tion.

Ger­many should im­me­di­ately make every ef­fort to take pre­cau­tions against a sus­pen­sion of Russ­ian en­ergy sup­ply and to quickly end its de­pen­dence on Russ­ian en­ergy sources. The long-​term goal must be to en­sure higher en­ergy se­cu­rity through di­ver­si­fi­ca­tion.

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