BERLIN (Reuters) – The German government’s council of economic advisers slashed its gross domestic product (GDP) forecast for Europe’s largest economy on Wednesday, citing economic uncertainty due to Russia’s invasion of Ukraine.
The advisers, whose forecasts guide the German government in setting fiscal policy, cut their 2022 GDP outlook for the country to 1.8% from 4.6%, adding it would not reach its pre-pandemic economic level before the third quarter of the year.
In 2023, Germany’s GDP should grow by 3.6%, the four advisors said.
“Before the outbreak of war, rising industrial production and a robust labor market pointed to an economic recovery. The Russian war of aggression against Ukraine has now drastically worsened economic conditions,” the advisors said in a statement.
Russia’s invasion of Ukraine on Feb. 24 further impaired supply chains that had already been strained due to the COVID-19 pandemic, and a sharp rise in prices for natural gas and crude oil weighed on companies and private consumption, they said.
As a result, the council expects inflation to reach 6.1% in 2022 before falling to 3.4% next year.
At the same time, the further impact of the war is difficult to assess, the experts said, adding that an escalation of the conflict and additional sanctions could have a significantly greater impact on the German and European economies.
“Germany should immediately pull out all the stops to arm itself against a possible halt in Russian energy supplies and at the same time quickly end its dependence on these imports,” said council member Volker Wieland.
In this way, energy security in Germany could be increased in the long term even if this would mean energy prices would remain elevated for some time, the council said.
(Reporting by Zuzanna Szymanska; Editing by Paul Carrel)
