Economists from leading German financial and economic institutions see an increased risk of permanent inflation due to the Ukraine crisis.
“The risk of a wage-price spiral has increased significantly,” said economics expert Veronika Grimm in a dpa survey. “The probability is increasing that we will see a wage-price spiral in the medium term,” said Marc Schattenberg of Deutsche Bank Research.
Fritzi Köhler-Geib, chief economist at the state-owned KfW Group, said: “Inflation can continue to rise and at least temporarily solidify.” In any case, the economic consequences of the Russian invasion of Ukraine are serious for Germany. Katharina Utermöhl from the Allianz Group takes a similar view: “The German economy is facing difficult times. The falling early indicators show that Russia’s invasion of Ukraine has also heralded an economic turning point.”
Inflation up to 6 percent
She is assuming growth of just 1.8 percent in Germany this year – but inflation of six percent on average for the year. The ECB’s target is around two percent. However, Utermöhl emphasized that there are currently no conclusive indications that excessive wage settlements are being made. “In view of the greatly increased economic uncertainty, I also assume that the unions will partially scale back their wage demands,” said the Allianz economist. This is also possible because the state relieves private households.
Schattenberg also fears an impact on the labor market. “It could be that the recovery in the labor market will be slowed down in the short term or even come to a standstill,” he said. In March, however, another decline in unemployment is to be expected. The Federal Employment Agency will present its March statistics next Thursday (March 31). Schattenberg is still comparatively optimistic about economic growth. “We have revised our growth forecast significantly downwards,” he said. However, he still expects growth of 2.7 percent if there is no gas supply stop from Russia.
High prices are cemented
According to Veronika Grimm, however, Germans will have to adjust to higher prices in the long term. “Even if there is no delivery stop, gas from other suppliers will be more expensive,” said Grimm. The task now is to rapidly expand renewable energies. “You have to do what you can.” However, compensation in this way before the end of three to five years is not realistic.
The problem is exacerbated by higher prices for fertilizer and food. “This will lead to a hunger crisis that will primarily affect emerging and developing countries,” said Grimm. Russia and Ukraine have a 14 percent share of global wheat production and generally a large share of global agricultural exports. “This will be the third major crisis of the decade.” Industrialized countries, on the other hand, are able to pay higher prices. It will be a challenge for the European Central Bank to use monetary policy to reconcile the expected low growth with the persistently high prices.
In the event of a delivery stop, Köhler-Geib sees the risk of a recession, at least in industry. “Without state support through short-time work, a significant drop in employment in energy-intensive sectors would then have to be expected,” she emphasized. As a result, the increase in employment could temporarily come to a standstill for the economy as a whole. “If there is no delivery stop, a subdued economic recovery from spring is likely.” On top of all that, there are the dangers of the corona pandemic. It is possible that infections, hospitalizations and fatalities from omicron or new virus mutants will skyrocket again. Köhler-Geib therefore warned of caution when further loosening the protection against infection. (dpa)