Less growth, more inflation for the German economy in 2022 – Ifo

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A robot adjusts a windshield in a fully automated process on a model of German carmaker Mercedes Benz’ A-class production line at Daimler’s factory in Rastatt, Germany, February 4, 2019. REUTERS/Kai Pfaffenbach/ File Photo/File Photo

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BERLIN, June 15 (Reuters) – Germany’s economy, Europe’s largest, is expected to grow weaker than expected this year due to the fallout from war in Ukraine, the Ifo institute said on Wednesday.

The institute lowered its German growth forecast for 2022 to 2.5%, from 3.1% forecast in March, while revising its inflation forecast to 6.8%, from 5.1% previously.

“At the beginning of the year, high prices led to a loss of purchasing power for private households and, consequently, to a drop in the consumption of goods,” said Ifo economist Timo Wollmershaeuser.

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“Economic output is currently still 1% below the pre-pandemic level of late 2019, but we expect a gradual decline in commodity prices and material bottlenecks in the second half of this year,” added Wollmershaeuser.

The Ifo predicts that German growth will reach 3.7% in 2023.

Separately, the German economics institute IfW said it was raising its forecast for German inflation this year to 7.4% from 5.8% previously. For 2023, the IfW raised its inflation forecast to 4.2% from 3.4%.

The IfW, one of Germany’s leading institutes and member of a group that advises the government, nevertheless left its forecast for GDP growth this year at 2.1%. For 2023, however, it lowered its projection to 3.3% from 3.5%.

“The purchasing power of disposable income is massively affected by high inflation,” the IfW said in a report. “During the current year, therefore, real disposable incomes will again decline significantly.”

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Reporting by Rene Wagner, writing by Miranda Murray, editing by Paul Carrel and Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.

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