The German economy is slowing down, this is a bad signal for Poland

The IFO institute lowered its GDP growth forecasts in Germany in 2022 from 5,1 to 3,7 percent. At the same time, it raised the forecast for 2023. All due to the problems with the coronavirus and the lack of access to many components for German industry.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Components for industry are missing

German IFO institute expects a decline in GDP in Germany by 4% in the fourth quarter, as well as stagnation in the economy in the first quarter of next year. And this is due to the Omikron variant of the coronavirus, which is causing further restrictions in the world. In Germany, there is practically a lockdown for the unvaccinated, and the government is working on introducing mandatory vaccination. At the moment, the restrictions do not significantly affect the functioning of industry and services, but it cannot be ruled out that a further increase in the number of cases may result in a tightening of the restrictions. It should also be remembered that any form of them in the pre-holiday period, associated with increased consumption, will have economic effects. The second element that is pulling the German economy down are problems with access to many components necessary for industry. Due to bottlenecks in world logistics, the German industry is not making full use of its potential. Many German products are advanced devices that consist of hundreds and sometimes thousands of parts produced around the world. Even if one element is missing, the final product cannot be delivered. This is why IFO forecasts that in 0,5 GDP will grow by 2022%, instead of the previously forecast 3,7%. At the same time, the institute notes that these problems should be resolved by 5,1, and therefore raised the forecast for this year to 2023 percent The German economy is set to end this year with a growth of 2,9 percent.

Business sentiment going down all the time

Lowering GDP growth forecasts are in line with the mood of German entrepreneurs which has been falling for five months now. The IFO business climate index fell in November from 96,5 points from 97,7 points in October. From month to month, companies are more pessimistic about both the current situation and prospects. Supply bottlenecks and the fourth wave of the coronavirus pose a challenge to German companies.

These problems are a challenge for the new German government that was formed last week. On Sunday Olaf Scholz was in Warsaw, the most important during the talks were political topics, but they had significant economic repercussions. The most important thing is the tension around Ukraine and the launch of the Nord Stream 2 gas pipeline. The talks on climate policy, which is extremely important for the new German government, and in Poland, raises concerns about the costs of a rapid departure from fossil fuels, were also important.

Germany remains Poland's most important trading partner and the economic slowdown beyond the Oder usually results in a similar one in Poland. This may also be the case this time. OECD forecasts indicate that in 2022 the Polish economy will grow by 5,2 percent. (after an increase of 5,3% in 2021). However, these forecasts were made ahead of a decline in growth rates in Germany. This means that we may also face a revision of our economic forecasts. In fact, our economy also has problems similar to those in Germany, albeit on a smaller scale.