The Bundesbank cut its growth projections for the German economy on Friday and predicted sharply higher inflation. This is due to soaring food and fuel prices sap households’ purchasing power and batter confidence.
The 2022 projection by the German central bank has hiked from 3.6% to7.1%. The 2023 projection increased from 2.2% to 4.5%. Price pressures have even worsen again recently, which is not fully reflected in the present projections,” Nagel said. “If this development is to continue, the annual average (inflation) rate for 2022 could be considerably above 7%.”
In 2024, the last year of the Bundesbank’s projection horizon, inflation is at 2.6%. “Euro area inflation rates won’t fall by themselves,” Nagel added. “Monetary policy is to reduce inflation through resolute action”. The ECB announced that rates would rise by 25 basis points in July and by substantially more in September.
Despite the cut, the 2022 growth projection is still somewhat more optimistic than the European Commission’s 1.6% estimate for Germany. The Bundesbank said that the estimates’ “baseline scenario” is on the idea that the conflict and its effects won’t worsen.
