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What and how many effects will the war have on the economy? Debate in Germany

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What is said among experts in Germany about the economic effects of the Russia-Ukraine war.

The mood of German entrepreneurs improves and the news surprises even analysts. The Ifo business climate index presented yesterday by the Bavarian institute reached 93 points, one point and is up from 91.9 in April. This is the second consecutive growth in two months and takes place in a phase characterized by uncertainty over the Russian-Ukrainian war and by concern for the soaring energy costs.

The economists, consulted by the Reuters, on the other hand, a drop of around 91.4 points was expected. They too were blown away by the answers given by the 9,000 top managers who substantiate the Ifo report.

“The German economy is proving robust despite fears of inflation, bottlenecks in supply chains, shortages of materials and the war in Ukraine,” said IFO president Clemens Fuest, commenting on the data, “not there are really visible signs of recession ”. And in fact the entrepreneurs seem to have abandoned the skepticism that had dominated in the winter months, both as regards the judgment on the current state of affairs and in the evaluation of prospects.

In two months, the concerns that emerged in the March poll certainly seem less incumbent, if not down, when, in the aftermath of the outbreak of the Russian-Ukrainian war, the Ifo index itself dropped to 90.8 points: from March to May the leap forward was 2.2 points.

Of course, there are also marked differences depending on the business sector. Thus the operators in the service sector appear to be the most satisfied today, especially those who had suffered most from the gloomy climate due to the pandemic: restaurateurs, hoteliers and tourism entrepreneurs in general. This year’s spring recovery looks more like that of 2020 than of 2021, when after weeks of hard lockdown people found themselves eager to regain living spaces.

Cities are starting to see similar visitor levels to pre-pandemic levels, restaurants are always full, and it’s no longer easy to find a vacant spot in holiday resorts. Helps the good weather (hot and little rain) and above all the unstoppable desire to put three years of restrictions behind us (at least until next autumn). The measure just launched by the government of the 9 euro monthly pass for urban public transport and regional trains (excluding only ICE high-speed and intercity trains) galvanized tour operators. It will start from 1 June and can be renewed in the months of July and August, therefore for the whole summer period. It is one of the measures contained in the package approved at the end of last week to mitigate the high energy prices, aimed at moving as many citizens as possible from private to public transport. But tourism professionals expect from this pass an additional incentive to travel, both internally and from abroad, especially since the pass can also be stipulated by tourists who will visit Germany.

Those who share the optimism of service operators least are the entrepreneurs of logistics and transport companies, who feel the difficulties of impasses in supply chains. Another sector that is returning to breathe is the construction sector, according to the IFO researchers, where there is a climate of slight recovery after the great concerns of March.

Regarding the future, however, economists remain cautious and far more pessimistic than entrepreneurs. The boom effect of services is destined to end with the summer, while the problems affecting logistics and sectors dependent on raw materials are destined to prolong.

“Due to the war, energy prices will remain high in the long term and therefore weigh on purchasing power,” said Fritzi Koehler-Geib, chief economist of KfW, interviewed by public television Ard. It can also be expected that restrictions in China for even small outbreaks of Covid will repeatedly disrupt global supply chains.

Alexander Krüger of the private bank Hauck Aufhäuser Lampe also curbs the euphoria: “Indices are rising or not, the mood of companies remains bad. The global situation admits of nothing but pessimism ”.

The experts’ estimates seem to agree with the pessimists. Many economists believe the economy will only grow by about two percent in 2022. The Association of German Chambers of Industry and Commerce (DIHK) expects only a modest 1-1.5 percent increase.


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