German economy has declined by 2.5 percent of GDP to reach about €100 billion due to the Ukrainian war and its repercussions on energy prices, head of Deutsches Institut für Wirtschaftsforschung (DIW) Marcel Fratzscher said on Monday.
DIW expects Russia’s invasion of Ukraine to continue to hinder the German economy’s growth and inflate costs, while higher energy prices would remain a clear competitive disadvantage for Germany in the next decades.
German government interventions and a mild European winter have softened the blow of the war and its repercussions, but Europe’s largest economy is more likely to head for a recession, Fratzscher added.
Fratzscher told the Rheinische Post newspaper that the German economy has a high proportion of the energy-intensive industry, and is extremely dependent on exports and global supply chains.
Germany’s standing as a business location can be threatened, as companies may not speed up efforts to use less energy and embrace digital and economic transformations, Fratzscher highlighted.
Policymakers and companies would be forced to compensate with more innovation and productivity, while the German government should not increase subsidies for fossil fuels.
The war and its aftermath would cost Germany almost four percent of its GDP, as Russia launched its invasion in February 2022 and the end of 2023, the Association of German Chambers of Commerce and Industry (DIHK) stated on Monday.
The economy will generate about €160 billion less, which is roughly €2,000 per German resident, DIHK President Peter Adrian told the Rheinische Post newspaper.
Germany’s central bank has expected the country’s economy to highly enter a technical slump.
“Economic output in the first quarter of 2023 is likely to be lower than in the previous quarter once again,” according to the Bundesbank’s monthly report.
Bundesbank expects Germany’s economic output to witness a slight decline in 2023, but is expected to have a better performance than the 0.5 percent GDP decline predicted in December.
