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.
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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