15/08/2022

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Germany, Europe’s greatest financial system, mentioned to be on breaking point of recession

LONDON, England: London Supply chain constraints and soaring coronavirus cases could plunge Germany into a recession this winter.

Research published by the Ifo Institute for Economic Research indicated that Germany, Europe’s largest economy, would shrink by 0.5 percent in the fourth quarter of this year, compared with the third, and stagnate in the first three months of 2022.

An economy is in recession when it contracts for two consecutive quarters.

“Ongoing supply bottlenecks and the fourth wave of the coronavirus are noticeably slowing down the German economy,” Timo Wollmershuser, head of forecasts at Ifo, said in a statement. “The strong post-pandemic recovery that was originally expected for 2022 still hasn’t materialized.”

Growth is expected to bounce back next summer, as fewer coronavirus cases are transmitted and supply bottlenecks ease, but the slow start to the year will cost the German manufacturing powerhouse.

Ifo slashed its German growth forecast for 2022 by 1.4 percentage points to 3.7 percent.

Ifo expects inflation to increase by 3.1 percent this year and 3.3 percent in 2022, while consumer prices are not expected to return to normal until 2023.

The grim outlook comes in the wake of a wave of coronavirus cases caused by the Omicron variant worldwide, which could add pressure to stretched global supply chains and force central banks to rethink plans to withdraw support for the economy.

Last week, Germany recorded its highest number of daily deaths from Covid-19 since February, as it struggled to bring a fourth wave of the pandemic under control.

Meanwhile, the International Energy Agency warned that a surge in cases would slow the recovery in global oil demand.

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