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  4. IMF sees tepid recovery in Germany
Europe

IMF sees tepid recovery in Germany

  • By Al Mayadeen English
  • Source: Agencies
  • 23 May 2022 21:19

IMF records a tepid recovery in Germany after the economy was failing but does not leave out the risk of a cut in gas supply from Russia.

  • IMF sees tepid recovery in Germany.
    IMF sees a tepid recovery in Germany.

The International Monetary Fund predicted a "tepid rebound" in Germany on Monday, but warned of potential downside risks, including a potential gas supply cutoff from Russia since the country would require two years to locate alternative sources.

“The baseline scenario is for a tepid recovery, but risks are skewed downward,” the IMF said in a statement on its 2022 Article IV mission. "The greatest threat is a persistent and complete shut-off of Russia’s gas exports to Germany and Europe more broadly, as it would take at least two years to fully replace the missing supplies in Germany."

Other risks to Germany's economy include harsher sanctions against Russia, as well as supply disruptions caused by the Ukraine crisis or further COVID limitations in the country or overseas, according to the IMF.

Decline in economic growth 

The IMF expects Germany's economic growth to decline to around 2% in 2022, down from 2.9% the previous year, before rebounding to just above 2% in 2023 if energy prices fall and supply chain difficulties resolve. "Growth would then decline toward potential after 2024," the IMF said.

“Inflation is expected to stay elevated at about 6½ percent in 2022 and moderate to about 3½ percent in 2023. However, growth could prove weaker and inflation higher than in the baseline,” the statement said.

The IMF anticipates that output will stay below pre-pandemic levels in the medium term due to higher energy prices, reduced external demand, and other factors directly or indirectly related to the crisis in Ukraine.

Read next: Spiegel: Russian oil ban to cause economic problems for east Germany

Moreover, Germany is willing to back the EU's embargo on Russian oil without Hungary's participation, but the proposal should come from the European Commission, according to German Economy Minister Robert Habeck today.

During an interview with the Deutschlandfunk Kultur radio, Habeck stated that "if head of the European Commission [Ursula von der Leyen] says, we will do it now as part of 26 [EU countries], without Hungary. This is the way I would go, but I have not heard about it from the EU yet. In this case, I would be ready to ... The European Commission has taken the lead in the negotiations." 

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