Germany lowers its growth forecasts again and expects inflation to continue

Rosalia Sanchez FOLLOW, CONTINUECorrespondent in Berlin Updated: 04/27/2022 17:16h
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The spring revision of the German government's economic projections paints a much worse picture than expected, with significantly lower growth and inflation almost double that expected so far for 2022. The Minister of Economy and Climate, Robert Habeck, has acknowledged that the war in Ukraine is wreaking havoc and that GDP will grow by only 2.2% this year, compared to the 3.6% expected in January. Inflation has also undergone a severe correction, but on the rise, with which Berlin calculates that it will reach 6.1% by the end of the year, instead of the 3.3% previously forecast. “The risks weighing on the situation are increasing. After two years of the pandemic, Russia's war against Ukraine adds additional weight," recognized Habeck, who also admits that Germany "pays the price" for its support for Ukraine, and that "we must be willing to pay that price." .

Chancellor Olaf Scholz's cabinet of ministers has decided at this morning's meeting on a new aid package against high energy prices. The new package consists of fuel tax cuts for at least the next three months (until the end of August), cheaper tickets for local public transport and new subsidies worth a combined billion euros, with the which aims to relieve citizens.

To finance this aid package, Finance Minister Christian Lindner will have to update the budget plans that have already been submitted to the Bundestag. In a supplementary budget, he is planning additional debts of almost 40 billion euros. According to the draft, only the flat rate of the price of energy will cost the State around 10,400 million euros. Although the measures add up to 13,800 million euros in total, the Treasury highlights that the State also takes 3,400 million more in income tax and solidarity surcharge. Costs of almost 9 billion euros are budgeted for the child bonus this year and the federal government will lose around 3.15 billion euros in tax revenue due to the temporary reduction in fuel tax.

As for fuel price aid, the government relies on companies to pass on discounts to customers. According to the Ministry of Finance, the tax rate on gasoline is reduced by 29.55 cents per liter and that of diesel by 14.04 cents, despite the fact that prices are currently not at their highest level since the start of the crisis. According to ADAC, Super E10 gasoline peaked on March 14, with a national daily average of 2,203 euros, 45 cents more than the day before the invasion broke out. The most expensive diesel was on March 10, at 2,321 euros per litre, an increase of almost 66 cents compared to the pre-war level.

In addition to subsidizing fossil fuels with cheaper fuel, the federal government will also make local public transport cheaper until the end of August, passengers should be able to travel for a flat rate of 9 euros per month on local and regional transport thanks to several changes to the law. of regionalisation, the basis for the funds that the federal government makes available to the Bundesländer each year to finance local rail transport. Berlin will give the federal states an additional 2.5 billion euros for this, although the regional governments want much more money to be able to compensate for the sharp increase in energy costs and the project could fail in the Federal Council.

Otherwise, self-employed workers subject to income tax will receive a lump sum of €300 gross to offset high energy costs, under a previously adopted measure, and prepayment of taxes is reduced for self-employed workers. . Families will see the child allowance increased in a single payment of 100 euros per child that will arrive in the bank account in the summer and will be paid automatically by the family fund, so it is not necessary to request it.

This week also starts the great government construction project to lower rental prices, which provides for 400,000 new homes in a year. Minister Habeck remains firm in his intention to reduce Germany's dependence on Russian gas immediately to 35% of its needs and has said that it may be "a matter of days" to achieve full independence from Russian oil.

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