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Bundesbank: The war is slowing the rally and driving up prices

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Frankfurt am Main (dpa) – According to the Bundesbank, the war in Ukraine is temporarily holding back the German economy.

“The effects of Russia’s attack on Ukraine are likely to have a noticeable impact on economic activity in Germany from March onwards,” the Deutsche Bundesbank summarized in its March report published on Monday. “From today’s perspective … the strong recovery forecast for the second quarter is likely to be significantly weaker.”

In the first quarter of 2022, economic output in Europe’s largest economy could “roughly stagnate”, economists at the Bundesbank in Frankfurt write. Other economists expect gross domestic product (GDP) to fall over the three-month period. That would then be a so-called technical recession, because the economy had already contracted in the last quarter of 2021 compared to the previous quarter.

Ukraine War: Trouble Expected Again

Many companies weathered the latest wave of the coronavirus pandemic relatively well, and material shortages abated. Due to the Russian invasion of Ukraine, supply chain problems are likely to worsen again in March. Additionally, energy prices increased tremendously as a result of the war. “This is expected to decrease the consumption of private households and the output of energy-intensive industries.”

The Bundesbank does not expect prices to drop quickly: “Due to the war in Ukraine, the inflation rate is likely to continue to rise in the coming months, which is likely to be due in particular to energy prices.”

In February, the annual rate of inflation in Germany again exceeded the five percent mark: consumer prices were 5.1 percent higher than in the same month last year. Consumers had to dig deeper into their pockets for fuel, natural gas and heating oil in particular. Food and industrial goods prices are also likely to receive an additional boost as a result of falling wheat exports from Ukraine and Russia or due to further disruptions in supply chains.

Bundesbank chief Nagel on high inflation

In view of the rising trend in inflation, Bundesbank President Joachim Nagel calls for the ultra-loose monetary policy to be eased further. “It is very clear to me: If the price outlook requires it, we must continue to normalize monetary policy and also start raising our key interest rates,” Nagel said Monday afternoon at an event organized by the Deutsche Bundesbank in Hannover, according to a previously distributed speech. “If net purchases end in the third quarter as currently forecast, this opens up the possibility of raising interest rates later this year if necessary.”

At its most recent monetary policy meeting on March 10, the Council of the European Central Bank (ECB), of which Nagel is a member, decided to cut billions of euros worth of central bank bond purchases faster than expected. provided. However, the central bank left open the possibility that interest rates in the euro zone could rise again after years of record lows. She stipulated that an interest rate step did not have to take place automatically after the purchase of new securities had stopped.

“In all caution in light of the extraordinary uncertainty: we should not delay exiting very loose monetary policy,” Nagel said. “Otherwise interest rates may have to rise faster or higher later on. However, a sharp rise in interest rates would place a heavier burden on businesses and households. And it could uncover existing vulnerabilities in the financial system and trigger sharp market fluctuations.”

According to Nagel, consumers in Germany will have to be prepared for further price increases in the near future: “Due to the increase in energy prices due to the war, consumer price increases should increase noticeably again, especially in the short term. “. The sharply rising prices are particularly hard on people with low incomes. “Targeted transfers are appropriate to give some particularly hard-hit people some relief,” Nagel said. “However, we in the Governing Council must ensure that strong inflation does not take hold and does not lead to excessive inflation in the medium term.”

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