Inflation to rebound
Rising energy prices will likely push inflation back toward 3 percent this year and next, the government said — prompting financial markets to expect two European Central Bank rate hikes this year.
ECB officials say they won’t overreact to what may be a short-lived blip, but have warned that they will raise rates if they see any signs of inflation taking root again, only four years after the last such shock.
German Economy Minister Katherina Reiche — whose past employment at energy giant E.ON has made her a target for criticism from the left and environmentalists — was quick to blame factors beyond her control for the latest downgrade.
“The recovery that we expected this year will once again be derailed by external geopolitical shocks,” Reiche told a press conference. “The war in Iran is driving energy and commodity prices through the roof. That is hurting households and raising costs for the German economy.”
However, German business and independent economists have both accused the government of failing to do what is in its power to revive growth by undertaking sweeping reforms, including slashing bureaucracy and cutting taxes on energy and labor.
“The cause lies with us,” Peter Leibinger, president of the Federation of German Industries, said earlier this week as the country’s largest business lobby predicted that industrial output would “stagnate, at best” this year. Domestic costs “are simply too high” for Germany to stay competitive, he warned.
Reiche on Wednesday said the government “can’t just ignore” repeated signs of a lack of private-sector confidence. A recent survey from the German Chamber of Trade and Commerce (DIHK) found that while public investment was set to grow 8 percent this year, private-sector investment was likely to stagnate.
Romanus Otte contributed reporting.