A recession is becoming more and more likely. The war in Ukraine and the sanctions against Russia are significantly dampening the economic outlook for Germany. The collapsing economic expectations are accompanied by an extreme rise in inflation expectations. The experts therefore expect a stagflation in the coming months. The worsened outlook affects practically all sectors of the German economy, but especially the energy-intensive sectors and the financial sector, comments ZEW President Professor Achim Wambach on current expectations.

The ZEW Indicator of Economic Sentiment for Germany fell more sharply than ever before in the March 2022 survey. The indicator plummeted 93.6 points to a current value of minus 39.3 points. This is the biggest drop in expectations since the survey began in December 1991. By comparison, the indicator experienced a decline of 58.2 points at the beginning of the COVID-19 pandemic in March 2020. Expectations are now similarly low as in summer 2019.

The assessment of the economic situation in Germany has also worsened in the current survey. The corresponding indicator dropped 13.3 points to a level of minus 21.4 points. The experts therefore assume that a slowdown in economic development will already be noticeable in March. Expectations for the inflation rate in Germany jump by 107.7 points to a new value of 70.2 points.

The financial market experts’ sentiment concerning the economic development of the eurozone decreased by 87.3 points in March, falling well below zero again to a new reading of minus 38.7 points. The situation indicator currently stands at minus 21.9 points, 22.5 points lower than in February.

Inflation expectations for the eurozone have risen by 104.6 points in the current survey. The indicator currently stands at 69.5 points. 76.5 per cent of the experts expect the inflation rate to increase in the next six months.