The consequences of the war in Ukraine are slowing economic growth in Germany, the German central bank predicts. The Bundesbank also expects significantly higher inflation, mainly due to higher prices for food and fuel. This will result in a significant drop in the purchasing power and confidence of German citizens.
The German central bank sees prices rise by 7.1 percent this year, well above the 3.6 percent expected last December. The Bundesbank economists are now also significantly less optimistic for next year and expect economic growth of only 2.2 percent instead of 4.5 percent.
The difference from the predictions of half a year ago is unusually large, due to the fact that the previous predictions were made before the Russian attack on Ukraine.
The Bundesbank’s expectations are broadly in line with the European Central Bank’s revisions, which showed accelerating inflation on Thursday due to rising fuel and food prices.
“Inflation will be even stronger this year than it was at the beginning of the eighties,” says Bundesbank president Joachim Nagel, referring to an earlier period when inflation in Germany was also painfully high.
According to Nagel, it is therefore important to act decisively now. “Inflation in the euro area will not fall by itself,” he said. “We need monetary policy to reduce inflation.”