Yahoo Finance Germany growth downgrade triggers recession fears
Fears are growing of a looming European recession after Germany slashed its growth forecasts and consumer confidence plunged to an all-time low.
Berlin’s economic ministry reduced its forecast for GDP growth this year to 2.2pc, down from the 3.6pc it predicted in January. Growth next year is now expected to reach 2.5pc, slightly faster than previously expected.
Robert Habeck, Germany's economy minister, said: “After two years of the coronavirus pandemic, the war in Russia is adding a new burden.
“The federal government is doing everything to preserve the substance of our economy, even in difficult times, with a targeted protective shield for our companies, which we are now implementing quickly.”
German consumer confidence has plunged to an all-time low as the conflict in Ukraine and soaring prices leave households fearful about their finances.
GfK’s consumer confidence plunged to a record low -26.5 points for May from -15.7 in April. Economists had predicted a reading of -16.
Melanie Debono of Pantheon Macroeconomics, said: “The slump in the GfK consumer sentiment headline, to below its record low in May 2020, is a clear sign that households are not happy seeing their spending power melt away, as inflation has continued to soar.
“Looking ahead, the risk to our forecast for consumer confidence to rebound, as the initial shock of the war in Ukraine fades, is to the downside.
“The survey for May was conducted between March 31 and April 11, which means it will have captured the government’s announcement of the fuel duty cut but missed the most recent escalation in the war in Ukraine and tiff over oil payments with Russia.”
Consumer price inflation in Germany reached 7.5pc in March, the highest since reunification, while annual producer price inflation is at a record high of 30.9pc.
Officials expect inflation will average 6.1pc over the course of the year, before slowing down to 2.8pc in 2023.
Joachim Lang, head of the BDI Federation of German Industries, said “a short-term recovery is not in sight”.
He warned the German economy is facing a “double crisis” from soaring energy prices and lockdowns in China as Beijing’s zero-Covid strategy backfires.
Holger Schmieding, chief economist at Berenberg Bank, said Germany is not yet in recessionary territory but is suffering from “stagflation”.
He said: “The recession risk would come in seriously, if one of two things go badly wrong.
“One is if the Chinese Covid [lockdown] situation gets worse… the other recession risk is an immediate stop of Russian gas deliveries to Europe.”
Surveys of private economists by Bloomberg indicate a 30pc chance Germany will soon enter a recession, and 35pc for the eurozone as a whole.
Despite the plunge in consumer confidence, Mr Schmieding said there are no signs that Germans are scrapping their plans for summer getaways now that restrictions have eased.
He said: “If it was not for this factor of the post-Covid reopening and the return to normal behaviour, then Germany would probably already be in recession."
French business confidence also dropped ahead of recent elections, falling to the lowest reading since 2018.
