War hit to German economy will last years: economist

THE economic impact on Germany of Russia’s invasion of Ukraine will last years, influential economist Marcel Fratzscher of the German Institute for Economic Research told Reuters, adding that it could cost 3 percentage points of growth this year.

Fratzscher, whose institute advises the government of Europe’s largest economy on macroeconomic policy, said the impact could last until 2025 when Germany expects to have freed itself from all exposure to Russian gas.

Germany, which for decades prospered from reliable flows of cheap Russian gas, is rushing to reorient itself after the outbreak of war in February.

“The war in Ukraine has done massive damage to the German economy,” Fratzscher said in an interview, adding that perhaps only 1.5 per cent would remain of the 4.5 per cent economic growth he had expected at the start of the year.

The impact on inflation, through high energy prices, would also be sustained for a similar period, though he rejected suggestions that there was cause for wage restraint. 

“Unions aren’t as strong as they were in the 1970s,” he said, noting that this year’s forecast wage growth of 4.5 per cent was well short of inflation at some 8 per cent.

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