War in Ukraine could plunge German economy into recession: Bundesbank

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The ongoing war in Ukraine could have devastating effects on the German economy this year, whether it’s lowering growth expectations or plunging the euro zone’s largest economy into recession, the German authorities warned on Monday. country’s central bank.

“The effects of the Russian invasion on Ukraine are expected to weigh significantly on German activity in March,” reads the latest report from the Bundesbank, which examines an economy that was just emerging from the effects of the coronavirus pandemic. .

“The strong recovery expected for the second quarter could, from today’s perspective … turn out to be significantly weaker.”

The latest Bundesbank report says Europe’s biggest economy could “stall somewhat” in the first quarter. Other economists have already predicted a recession between January and March, which would plunge Germany into a technical recession, since the last quarter of 2021 also saw an economic decline.

Two consecutive quarters of recession meet the definition of a technical recession.

That said, the bank noted that many businesses survived the latest wave of coronavirus relatively well and that commodity shortages were showing signs of easing.

“But, because of the Russian invasion of Ukraine, the problems in the delivery chains could already worsen in March.”

This would be accompanied by an expected increase in energy prices. “This is likely to dampen private household consumption and production in energy-intensive industries.”

Recent strong price increases are unlikely to reverse any time soon. “Due to the war in Ukraine, the inflation rate is likely to rise in the coming months, which is mainly due to energy prices.”

Inflation rose again in Germany in February, surpassing the 5% mark: at 5.1%, consumer inflation jumped compared to the same month a year ago. Gasoline, gas and heating oil were the main contributors to the increase.

“Food and industrial commodity prices are also expected to rise due to the disruption of wheat exports from Ukraine and Russia as well as further supply chain disruptions,” the bank said.

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