Corona, inflation, Ukraine war - economy still under pressure

Economic growth is the basis of our prosperity. To maintain prosperity, a new growth path must be achieved on a sustainable basis. More value-creation activities must be made possible in Germany as a business location. A central task of economic policy is therefore to improve the framework conditions for companies.

Economic growth, measured as an increase in gross domestic product (GDP), is the increase in the volume of goods and services produced by an economy. Economic growth is not an end in itself, but an expression of successful economic policy. Only a location with prospering companies provides the conditions for work, earned income and thus the material basis of life for most people in the long term. Economic growth is a prerequisite for ensuring and, where possible, improving these conditions in the long term.

An important measure of the supply of goods and services, in short prosperity, is growth per capita. As one of the main goals of economic policy, this growth can help resolve social conflicts within a society and drive structural change. Finally, it also generates funds for tasks in the field of environmental protection and development aid.

Corona pandemic and Ukraine war weigh on economy

The Corona pandemic and the associated restrictions and knock-on effects over the course of the last two years have had a far-reaching impact on the German economy. In 2020, gross domestic product fell significantly by - 4.6 percent compared with the previous year. In the past year 2021, with an increase of 2.7 percent, the pre-crisis level could not be reached, but is back on the growth path.

On the one hand, catch-up effects are forecast for this year; on the other, the economic recovery will be burdened by the war in Ukraine. When the pre-crisis level of economic output can be reached depends largely on the course of the war. There is great economic uncertainty.

Supply and material bottlenecks as a result of Corona and the Ukraine war are hampering economic activity. Consumer prices (CPI) rose by an average of 3.1 percent last year compared with 2020. A higher inflation rate was last recorded in 1993 (+ 4.5 percent). Consumer prices are forecast to be even significantly higher in 2022. The main reason for this development is high energy prices, but producer prices also rose due to higher prices for intermediate goods.

Burden moratorium for economic recovery

In principle, economic growth can come about in two ways: First, through higher utilization of existing production capacities, and second, through the creation of new production capacities. In addition to investments in machinery and equipment, investments in education and technological progress determine the level of economic growth.

In the crisis triggered by the pandemic and the Ukraine war, it is important on the one hand to stabilize the markets by providing financial support and loans, as the German government has done to a historic degree. But to support the economy, it is also essential to improve incentives for investment and increase the scope for entrepreneurial action. There is an urgent need to implement a comprehensive moratorium on burdens for the economy in and after the crisis.