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German economists lower growth outlook, see worse if gas cut

BERLIN (AP) – A group of leading economic think tanks slashed its forecast for growth in Germany this year, predicting yesterday that Europe’s biggest economy will expand by 2.7 per cent as Russia’s war in Ukraine weighs on prospects.

The five institutes’ revised outlook compared with a forecast of 4.8 per cent they made last fall. They forecast an even worse performance if Russian gas supplies are cut off suddenly.

They blamed the war and the “worse than expected course” of the coronavirus pandemic over the winter for yesterday’s outlook revision.

It is the latest in a string of downgrades for Germany’s economic outlook, but is still more optimistic than a recent prediction of 1.8 per cent growth in gross domestic product (GDP) by the government’s panel of independent economic advisers.

For 2023, the think tanks forecast moderately better growth of 3.1 per cent. The baseline predictions for this year and next assume continuing gas deliveries and “no further economic escalation from the war in Ukraine”, they said.

If energy deliveries are cut off, they forecast growth of 1.9 per cent this year and a contraction of 2.2 per cent in 2023. They said “the cumulative loss of GDP in 2022 and 2023 in the event of a supply freeze is likely to be around EUR220 billion”, or USD239 billion.

Germany relies on Russia for about 40 per cent of its natural gas deliveries. The government is working to reduce that dependency, but said it needs time to exit Russian gas altogether and has opposed an immediate stop to supplies.

Last year, Germany’s GDP grew by 2.9 per cent.