FRANKFURT, June 10 (Reuters) – The Bundesbank on Friday downgraded its growth forecast for the German economy and predicted a sharp rise in inflation as soaring food and fuel prices undermine government power. household buying and undermining confidence.
The German central bank now sees prices rising by 7.1% in 2022, well above the 3.6% forecast in December, while the figure for 2023 has been raised to 4.5% from 2.2%.
“Inflation this year will be even higher than it was in the early 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 current projections,” Nagel said. “If this development is assumed to continue, the average annual rate (of inflation) for 2022 could be considerably higher than 7%.”
The update is broadly in line with the European Central Bank’s revisions to its own forecast on Thursday, which showed an acceleration in inflation due to soaring fuel and food prices, but a blow to growth.
In 2024, the last year of the Bundesbank’s projection horizon, inflation is estimated at 2.6%, well above the ECB’s 2% target for the eurozone.
“Eurozone inflation rates will not fall on their own,” Nagel added. “Monetary policy is called upon to reduce inflation by determined action.”
The ECB said on Thursday it would raise rates in July by 25 basis points and an even bigger hike may be needed in September before a series of further hikes.
On growth, Germany’s central bank now sees Europe’s largest economy growing 1.9% this year, less than half of the 4.2% it forecast in December, while expected growth in 2023 was reduced to 2.4% from 3.2%.
Despite the decline, the growth projection for 2022 is still somewhat more optimistic than the European Commission’s estimate of 1.6% for Germany.
“The baseline scenario of the projections is based on the assumption that the war and its consequences will no longer escalate,” the Bundesbank said. (Reporting by Balazs Koranyi; Editing by Toby Chopra)