German Bundesbank Warns of Noticeable Economic Fallout from Russian Invasion of Ukraine
21 March 2022
By David Barwick – FRANKFURT (Econostream) – Russia’s war of aggression against Ukraine will lead to a more or less stagnant 1Q and a considerably weaker 2Q for Germany's economy, the German Bundesbank warned on Monday in its latest monthly report.
‘The effects of Russia's attack on Ukraine are likely to have a noticeable impact on economic activity in Germany from March onwards’, the Bundesbank said. The first quarter had been going better than expected on a broad front, but the Russian assault on its neighbour would probably lead to supply constraints as soon as the current month, it said.
Moreover, the massive increase in energy prices would hurt household spending and limit output in some sectors, the German central bank said. In view of the expected blow to trade and risen uncertainty, ‘the consequences of the war are likely to considerably weaken the actually expected economic recovery’, the Bundesbank said.
The outbreak of the war having been in the second half of 1Q, quarterly output would be about flat, according to the Bundesbank.
‘The strong recovery planned for the second quarter, however, is likely to be much weaker from today's perspective’, it continued. ‘The extent of the impact of the conflict is, however, very uncertain and depends on the further course of events.’
Going into 2022, price pressures rose yet again, and the increase of HICP in February extended to all parts of the measure except services, the Bundesbank said.
‘Due to the war in Ukraine, the inflation rate is expected to rise somewhat further in the coming months, which is likely to be due in particular to energy prices’, though developments in the latter respect are ‘particularly difficult to assess at the moment’, the Bundesbank said.
‘Prices for food and industrial goods are also likely to receive an additional boost in the wake of the collapse in wheat exports from Ukraine and Russia or due to new disruptions in the supply chains’, it added.
Labour market developments were generally positive up until the Russian invasion of Ukraine, which forward-looking indicators did not yet incorporate, the Bundesbank noted. While the IAB unemployment barometer ‘rose considerably into positive territory in February’, suggesting an ongoing decline of unemployment in the next months, ‘[h]ere too, however, the effects of the war in Ukraine have not yet been recorded’, the Bundesbank said.