war in Ukraine
DIW President expects recession and higher inflation
The President of the German Institute for Economic Research (DIW), Marcel Fratzscher. Photo: Bernd von Jutrczenka/dpa
© dpa-infocom GmbH
DIW President Marcel Fratzscher does not rule out an inflation rate of ten percent as a consequence of the war. At the same time, he calls for the debt brake to be abandoned for the time being.
As a result of the war in Ukraine, the German Institute for Economic Research (DIW) expects economic output in Germany to decline and prices to rise even more.
He expects “that the German economy will now slide back into recession,” said DIW President Marcel Fratzscher of the “Neue Osnabrücker Zeitung” (Thursday). As in the last quarter of 2021, the German economy is likely to shrink in the first and second quarters.
At the same time, Fratzscher assumes that inflation will accelerate. “There will probably be inflation rates of well over five percent in the current year. In the event of an escalation of the war and new sanctions, it can even go towards ten percent,” he said. According to Fratzscher, inflation is likely to increase again in the coming weeks and months, “because not all price increases and higher costs have yet been passed on to consumers”.
One should not only look at energy prices, but also at supply chains for raw materials such as rare earths and food. Russia is one of the major exporters of wheat and fertilizers. “We must therefore be prepared for the fact that food prices could rise significantly again.” It could be “very, very hard for consumers in the coming months”.
Abandonment of the debt brake demanded
In addition, Fratzscher calls on the federal government to give up the debt brake for the coming years. “The Ukraine war is a dam break for German financial policy, because it will make it impossible to comply with the debt brake for the coming years,” said the President of the German Institute for Economic Research (DIW) of the “Rheinische Post” (Thursday). He pointed out the parallel requirements of the corona pandemic and the ecological and digital restructuring of the economy.
The government can continue to try to circumvent the debt brake through reserves and shadow budgets. But: “You should now be honest,” advised Fratzscher. “The federal government must not repeat the mistakes of the past and save the country to death by putting off essential public investments in security, climate protection, education, health and digitization.”