Crisis follows crisis

Berlin The German economy is off to a good start in 2022. It seems that supply chain problems are gradually resolving, industrial production rebounded in January, and new orders and vacancies reached record levels. In addition, the expected slowdown in economic output in the fourth quarter of 2021 was significantly weakened by the Federal Statistical Office in the first revision. It appears that the economic consequences of the Corona epidemic have finally been overcome, and all indications are pointing to a recovery. Until February 24.

Instead of climate protection and corona, war and energy shortages now dominate the headlines — and with them, government action. Concerns about ‘stagflation’ are spreading.

>> Read here: Ifo: Companies want to raise construction prices across the board due to bottlenecks.

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Economic forecasts are based on analysis of past data and data derived from that for the future. However, for the war in Europe and the severe energy price shock, there is actually no historical data, which means that all forecasts are subject to a high degree of uncertainty. “Nassim Taleb came up with a ‘black swan’ metaphor for the unexpected consequences of completely unexpected events – the war in Europe is a black swan,” confirmed Bert Ropp, Head of the Handelsblatt Research Institute (HRI). HRI forecast. “The symmetries and established behavioral patterns of the past and the future are no longer valid. So there is no model that can roughly depict the potential consequences of escalating the current situation.”

For the same reason, different economic forecasts varied very widely even after the outbreak of the pandemic – and most of the forecasts later turned out to be wrong. Some risks have been overestimated, while others, such as the lasting impact on global supply chains, have been underestimated. In general, economic pessimism in the spring of 2020 was too great. Despite many uncontrollable matters, German industry has always proven to be very resilient. Companies were able to adapt their supply chains and sales markets to changing framework conditions, so that disruptions were often only temporary.

The economy will also deal with the crisis of war

The Institute for Human Rights does not assume that the Russian conflict and associated sanctions will end quickly. At the same time, we expect the German economy to also be able to handle this crisis, even if some adjustment difficulties are inevitable. It is envisaged that gas supplies will be prioritized in the coming autumn and winter, so that the production of companies or individual sectors will have to be stopped.

However, the macroeconomic consequences are likely to be much less than those caused by the Corona pandemic. Although we are significantly reducing our economic forecast for the current year, we do not expect a decline in economic output as in the first year of Corona 2020.

The German economy is expected to grow by 2.7 percent this year and by 2 percent in 2023. The pre-halo level will be almost reached this year. Then the German economy grows by about 0.3 per cent each quarter, in line with its trend. The summer boom that many other institutes predicted until recently will not happen. “Thus, the German economy will likely lack three years of long-term economic growth,” HRI President Rürup said.

This means that GDP will be about 300 billion euros less in the long run than it would have been without the pandemic. Added to this are the losses from the Ukraine war and sanctions against Russia, Robb emphasized. “Today, Germany is significantly poorer compared to the 2019 forecast.”

Private consumption will increase again

For the upcoming spring and summer, we expect an increase in private consumption, as almost all of the Corona protection measures will be lifted soon. Many consumers have accumulated significant savings during the pandemic lockdown. The sharp rise in energy prices has curbed this expansion of private consumption, significantly reducing the real purchasing power of consumers.

>> Read here: Heavy headwinds: Institute for World Economics cuts growth forecast in half

Some of the pent-up savings may be used to pay for higher energy bills, and thus are not available for other consumption purposes. The bottom line is that domestic consumers are likely to consume less in real terms than initially assumed. However, the influx of refugees from Ukraine is likely to significantly increase domestic consumption, especially if the war lasts longer and the refugees have to stay longer in Germany. Overall, private consumption should grow by 3.5 percent in real terms this year and slow to 1.5 percent in 2023. This is why private consumption will not reach the pre-corona level again in 2023.

State consumption is very different: in the context of the epidemic, the public sector has spent a lot of money on protection against infection and stabilization of the economy. Instead of the usual annual growth of about 1 to 1.5 percent, government consumption grew by more than three percent in 2019, 2020 and 2021. In the current year, the country’s consumption continues to expand, despite the reduction of Corona measures significantly. However, this decline is offset by higher spending related to the Ukraine war. On the other hand, the state is significantly expanding its transfers in order to at least compensate those in need for high energy costs. On the other hand, there are high government expenditures for the care of refugees.

For investors, uncertainty is poison. In the event of external macroeconomic shocks, waiting is the order of the day for many companies, so some investment projects are being put on hold. At the same time, however, the energy price shock shows that there is no alternative to desirable decarbonization – and thus large-scale investments are needed. So gross fixed capital formation should increase moderately this year and next. In light of the severe recession in 2020, the pre-crisis level will not be reached.


The construction industry, on the other hand, has overcome its weak phase and will grow properly again in 2022. In addition to the shortage of skilled workers, skyrocketing material prices are limiting a stronger expansion. The demand for private and government building services remains very high, not least because large parts of the infrastructure and building stock are in need of refurbishment.

The federal government has announced high government investments in armaments, energy infrastructure, and climate protection. Of course, it must be borne in mind that the share of the state in total investment is relatively small at just under twelve percent. In addition, the announced very high amounts will be spread over several years, so that the macroeconomic effects remain under control.

In the future, only the flow of goods will be diverted

Global trade, world economy and therefore German foreign trade in the near future will be affected by two global events in particular. The war in Ukraine and sanctions against Russia slow the global flow of goods in the short term; In the future, however, these will be transformed in the first place. Russia will remain permanently isolated. It is also uncertain whether China will stick to its zero-Covid strategy and whether there will be frequent port and domestic shutdowns in the world’s second largest economy as the year progresses.

This would keep global supply chains under stress and repeatedly cause temporary production outages in Germany as well. So exports and imports will continue to grow, albeit at a slower pace than in the previous year. At 0.1 and 0.3 percentage points, foreign trade will make only a small contribution to economic growth this year and next.

An increase in the price of energy will affect almost all products in the form of higher production and transportation costs. It is conceivable that rising oil and coal prices will stimulate global production of fossil fuels or that the federal government will counter price hikes with administrative rules. However, annual inflation is likely to average 5.5 percent, a value last exceeded in 1981 during the first Gulf War.

In 2023, price levels will continue to rise as there are likely to be modest second-round effects through higher wage deals and higher commodity prices taking some time to feed consumer prices through supply chains. So we expect 3.7 percent inflation for 2023. The 2.1 percent inflation rate projected by the European Central Bank for the entire Eurozone in 2023 is likely to be very low – and it looks more like hope than facts.

stable job market

The German labor market has held up well during the pandemic, which is also due to generous labor regulations for a short time. In February 2022, unemployment almost returned to pre-corona levels. The number of job vacancies reached an all-time high in the last quarter of 2021. Large parts of the German economy suffer from a shortage of skilled workers, which will only get worse in the coming years due to demographic factors. This may be one of the reasons why many companies are not laying off traditional and qualified employees during the Corona crisis.

On average this year, unemployment will reach a record low of 2.18 million in reunited Germany and will continue to decline significantly in 2023. In the second half of 2023, less than two million people will be registered as unemployed. Employment will then peak at 45.6 million people in employment, before starting to decline gradually from the middle of this decade, as baby boomers are gradually retiring and must be replaced by significantly weaker cohorts in workshops and offices.

“As this development will continue, growth in total economic output will not be a normal matter from 2030 onwards,” warns HRI President Rürup. “Even without new macroeconomic shocks.”

more: Post-Corona boom canceled: This is how the German economy will develop

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