Germany's leading economic institutes are slashing their 2022 growth forecast for Europe's biggest economy to 2.7% from 4.8% due to the impact of the war in Ukraine, two people familiar with the matter told Reuters.
The five institutes - the RWI in Essen, the DIW in Berlin, the Ifo in Munich, the IfW in Kiel and Halle's IWH - are due to release their joint forecast tomorrow.
The forecast comes amid spiking inflation and expectations for a dip in growth.
The institutes now see consumer prices jumping by more than 6% this year, compared with a previous forecast for 2.5%, issued in October 2021.
The more pessimistic outlook echoes other weak economic reports from Germany following Russia's invasion of Ukraine, which began on February 24.
Late last month, the German government's council of economic advisers more than halved its 2022 growth forecast for Europe's largest economy to 1.8% and flagged a "substantial" recession risk as a result of fallout from the invasion.
German investor sentiment also fell in April, a survey showed earlier today, and business morale last month plummeted as companies worried about rising energy prices, driver shortages and the stability of supply chains.
The German institutes have a brighter outlook for 2023, though, lifting their estimates for gross domestic product (GDP) growth to 3.1% from 1.9%, the sources said, with inflation seen just below 3%.
That forecast would change, however, if there was an immediate stop to Russian energy imports, they warned.
In such a case, Germany's economy could shrink by more than 2%, the institutes forecast according to the sources, adding that a deep recession was not ruled out.
The institutes' estimates form the basis for the government's own growth forecast which the economy ministry will present later this month.
Meanwhile, German investor sentiment fell by less than expected in April, as a decline in inflation expectations gave some cause for hope about the outlook for Europe's largest economy.
The ZEW economic research institute said its economic sentiment index fell to -41 points from -39.3 in March. A Reuters poll had pointed to a reading of -48 for April.
"The ZEW Indicator of Economic Sentiment remains at a low level. The experts are pessimistic about the current economic situation and assume that it will continue to deteriorate," ZEW President Achim Wambach said.
"The decline in inflation expectations, which cuts the previous month's considerable increase by about half, gives some cause for hope. However, the prospect of stagflation over the next six months remains," he said.
An index for current conditions fell to -30.8 from -21.4. The consensus forecast was for a reading of -35.
The ZEW data echo other weak economic reports from Germany following Russia's invasion of Ukraine, which began on February 24.
Late last month, the German government's council of economic advisers more than halved its 2022 growth forecast for Europe's largest economy to 1.8% and flagged a "substantial" recession risk as a result of the invasion.
German business morale also plummeted in March as companies worried about rising energy prices, driver shortages and the stability of supply chains in the wake of the war in Ukraine.
Separate data today showed Germany's annual harmonised consumer price inflation (HICP) rate ran at 7.6% in March. Wholesale prices rose by 22.6% on the year, the highest annual rate since the calculation of the data began in 1962.
"Germany is threatened with recession," said Thomas Gitzel, chief economist at VP Bank.
"Germany, with its export-heavy industry and dependence on intermediate goods from Asia, is without weather protection in a raging logistics hurricane," he added.
Germany plans to offer more than €100 billion worth of aid to companies hit by fallout from the war in Ukraine, according to a document from the finance and economy ministries seen by Reuters last Friday.