Germany is experiencing stagflation:
(1) The German IFO business confidence index plunged during March because of the jump in energy prices that resulted from the Russian invasion of Ukraine. Then in April, it rebounded slightly to 86.7 from 84.9 in March.
(2) German companies are experiencing more supply-chain problems, and their costs are soaring as a result of the war, which has also raised consumer prices. The German CPI rose 7.3% y/y in March after an inflation rate of 5.1% in February. The German MSCI stock price index (in euros) is down 14.6% ytd.
(3) The FT reports: “Before the war in Ukraine, Russia accounted for 55 per cent of all German gas imports, according to figures from the German government. More than a third of that gas is consumed by the manufacturing sector. In the chemical industry, gas is needed not just to generate electricity and heat, but also to make chemicals derived from hydrocarbons.”
(4) The Bundesbank has said that the German economy “more or less stagnated” during Q1, adding that the economic implications of the war in Ukraine are uncertain and depend on how the situation evolves.
