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Bundesbank halves 2022 growth forecast, doubles inflation projection for Germany -Breaking


© Reuters. FILE PHOTO – General view of “Grosse Bergstrasse”, Hamburg, Germany. REUTERS/Fabian Bimmer/File photo

FRANKFURT (Reuters – Friday’s growth projections by the Bundesbank for Germany were cut and inflation forecasts are now higher. Rising fuel and food costs have a negative impact on households’ purchasing power, and their confidence.

According to the German central bank, prices will rise by 7.1% in 2022. This is well above December’s 3.6% projection. The 2023 number was increased from 2.2% to 4.5%.

“Inflation this year will be even stronger than it was at the beginning of the 1980s,” Bundesbank President Joachim Nagel said, referring to the previous period of painfully high consumer price growth.

“Price pressures have even intensified again recently, which is not fully reflected in the present projections,” Nagel said. “If this development is assumed to continue, the annual average (inflation) rate for 2022 could be considerably above 7%.”

It is in general agreement with revisions made by the European Central Bank to its own forecasts, on Thursday. They showed an increase in inflation due to surging fuel prices, and a large hit for growth.

Inflation in 2024 is the final year of the Bundesbank projection horizon. It’s at 2.6% which is much higher than the ECB’s 2% goal for the euro area.

“Euro area inflation rates won’t fall by themselves,” Nagel added. “Monetary policy is called upon to reduce inflation through resolute action.”

On Thursday, the ECB stated that rates would be raised by 25 basis points in July. A larger increase could occur in September to prevent further increases.

The German central bank sees Europe’s largest economy growing by 1.9% in 2019, less than the 4.2% predicted in December. However, its expected growth for 2023 is 2.4%, down from the 3.2% forecast in December.

The 2022 growth projection for Germany is slightly less optimistic than the 1.6% European Commission estimate.

The Bundesbank stated that “the baseline scenario for the projections is based on the assumption of war and its consequences not intensifying any further.”