Germany's growth expected at 1.2% in 2022, 0.8% in 2023: IMF Board

Uncertainty is very high, with risks to the baseline growth forecast skewed downward and risks to the inflation forecast skewed upward. The greatest threat is a persistent shut-off of the remaining Russian gas exports to Europe, which could cause sizable reductions in German economic activity and increases in inflation, IMF said in a release.

A prolonged war and resurging COVID-19 infections could also intensify supply chain disruptions. Persistently-high inflation and fears of a de-anchoring of inflation expectations can prompt major central banks to tighten policies faster than currently expected, potentially triggering a sharp tightening in financial conditions and corrections in asset prices.

In response to surging energy prices, the government is expanding income support for vulnerable households, cutting fuel taxes, and providing liquidity support to firms. However, the fiscal stance in 2022 is expected to be broadly neutral as COVID-19 relief measures are phased out, IMF noted.

The war has so far had limited effects on the financial sector. Overall, banks remain largely resilient to solvency and liquidity shocks.

The IMF directors welcomed the German authorities’ ambitious decarbonisation plans and their digitalisation and transportation infrastructure push. They encouraged the authorities to continue investing in Germany’s growth potential and resilience, through further enhancing energy security, digitalisation, innovation, labour supply and training, and social protection.

Fibre2Fashion News Desk (DS)