Economist Penn: Severe economic downturn is inevitable

Lindner consultant warns of recession: Previous economic setbacks were just the beginning

1 Aug 2022 2:49 p.m

The President of the Walter Eucken Institute, Lars Feld, speaks plainly about the economic development in Germany: “It is only now that it is really getting tough,” says the chief adviser to Finance Minister Christian Lindner (FDP) – and he does not include double-digit inflation rates more out.

Is the economic crisis only really gaining momentum now? According to Prof. Dr. Lars Peter Feld, the chief advisor to the Federal Finance Minister Christian Lindner (FDP), to the Handelsblattthe answer is clear:

“It’s just getting really hard now”

According to Feld, the bad situation in the German economy since April is not a good thing, because he emphasizes:

“Germany is in extremely uncertain waters. […] The economic setbacks in the first half of 2022 were just the beginning.”

An immediate recession is very realistic, says Feld, who is also President of the prestigious Walter Eucken Institute. V. near the Albert-Ludwigs-University in Freiburg im Breisgau. The “energy crisis” in particular, which was massively fueled by the anti-Russian sanctions, is contributing to this. A recession would be “inevitable” if Russian gas supplies were permanently stopped. When asked how Germany was doing compared to the “2008/2009 financial crisis and the 2020 corona crisis”, the 55-year-old replies:

“The slump in the numbers may have been more extreme back then. But the situation now can certainly be more problematic. In the previous crises there was an external shock to which one could react in a targeted manner. It was then quickly recognizable: At some point it will be over. Now we are in a situation in which the shock lasts indefinitely and always brings new consequences, which then reinforce each other. […] The energy crisis arose from the war in Ukraine. This meets the consequences of the corona pandemic. This drives up prices, especially for gas and oil. Price increases can now be seen across the spectrum of goods and services. The high prices mean that companies are partially shutting down their production and waiting. This in turn increases the order backlog, so that the supply chain problems caused by the pandemic are exacerbated by the war.”

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For this reason, Feld is calling for the three remaining nuclear power plants in Germany to be operated not only beyond 2022, but for “at least five years”. At the same time, he wants the federal government to urge consumers to save on gas. The plan is to switch to other energy sources, and not “every transit room” needs to be heated. When asked how ordinary citizens are supposed to cope financially, Feld says:

Of course, relief is needed, especially for low-income households. There is no way around transfers for the recipients of basic security, unemployment benefit II and housing benefit.”

The upcoming tax reform could definitely be designed in such a way “that lower and middle incomes in particular are relatively better off”. It is also important to contain the cold progression. Nevertheless, Feld does not rule out further price increases:

“The forecasts say that the high point could already be reached. But I would be more cautious. The following rule of thumb works quite well, especially in phases of high inflation: The producer prices arrive with a delay of one third in the consumer prices, i.e. the inflation rate. The producer prices are always still at a very high level. They have grown by more than 30 percent in each of the past four months. So there is some evidence that even double-digit inflation rates are possible.”

more on the subject Dramatic increases in energy prices and inflation are threatening craft businesses in Germany

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Source: RT

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