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Germany to hike 2022 inflation forecast to 6.1 per cent

germany german frankfurt economy inflation
A survey showed last week that one in 10 consumers in Germany were dipping into their savings to shoulder rising costs

The German government is set to hike its inflation forecast for this year to 6.1 per cent due to the impact of the war in Ukraine, up from 3.3 per cent it had forecast in January, according to government document seen by Reuters on Monday.

Berlin, which is due to present its spring economic forecasts on Wednesday, sees consumer price growth easing to 2.8 per cent in 2023, the document showed.

German annual inflation rose to its highest level in more than 40 years in March as prices of natural gas and oil products soared following Russia’s invasion of Ukraine, and gas and electricity bills for German households signing new contracts hit a record high last month.

Germany’s ruling coalition announced relief measures last month worth roughly 16 billion euro ($17.2 billion) to help consumers cope with soaring energy costs and to reduce dependence on Russian gas.

April inflation data is due to be published on Thursday.

The German government’s spring forecasts see consumer spending jumping by 9.7 per cent this year, 0.6 percentage points more than forecast in January, the document showed. In 2023, consumer spending will grow more slowly at a rate of 4.8 per cent.

Berlin meanwhile sees the savings rate shrinking to 10.9 per cent from 15.0 per cent last year.

A survey showed last week that one in 10 consumers in Germany were dipping into their savings to shoulder rising costs. Especially younger consumers aged 25 to 34 were more likely to say they were saving less or had taken out loans to help pay their bills.

The sharp rise in energy prices is also hitting companies. An Ifo survey published on Monday showed that nearly half of German companies planned to reduce investments due to rising energy costs.

German business morale unexpectedly rose slightly in April, following a big drop in March, as companies were less pessimistic after the economy appeared resilient following the initial shock of the war in Ukraine.
However, the government’s spring forecasts show that the unemployment rate is expected to decline to 5.0 per cent this year from 5.7 per cent in 2021 and to remain stable next year.

The government is also set to cut on Wednesday its growth expectations for Europe’s biggest economy for 2022 to 2.2 per cent from 3.6 per cent, a source had told Reuters on Friday. Berlin sees growth picking up slightly to 2.5 per cent in 2023, the source had said.

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