Europe Faces War Bill... Inflation Bomb Dropped

Disruptions in Raw Material Supply Due to Russian Economic Sanctions
German Inflation Jumps to 7.3%, Spain Soars to 9.8%
Economic Growth Forecasts Sharply Revised Downward

[Asia Economy Reporter Kim Hyun-jung] The Western economic sanctions following Russia's invasion of Ukraine have sent a 'war bill' flying to Europe. Disruptions in raw material supplies have accelerated inflation, and economic growth is expected to fall short of initial forecasts.

According to the European Central Bank (ECB) on the 30th (local time), Germany's inflation rate in March reached 7.3%, marking the highest level since reunification in 1990. Germany's inflation rate jumped nearly 2 percentage points from 5.5% last month within just one month.

On the same day, Spain's National Statistics Institute announced that Spain's March inflation rate was preliminarily estimated at 9.8%, the highest in about 37 years since May 1985.

European inflation had been rising even before Russia's invasion of Ukraine, but after the war, international oil prices and food prices surged sharply, accelerating the pace. Within about a month after the outbreak of war, wheat prices rose by 21%, barley by 33%, and some fertilizers by 40%. In the UK, inflation reached 6.2% from February, the highest in 30 years since March 1992. The March figure has not yet been released.

ING's Chief Economist Carsten Brzeski said, "The bad news is that this is not the end of accelerating inflation," adding, "Double-digit inflation rates are no longer off the table."

Economic experts expect the Eurozone inflation rate for March, to be announced on the 1st of next month, to reach 6.6%.

According to the European Commission announced on the same day, the Eurozone economic sentiment indicator fell 5.4 points from the previous month to 108.5, marking the lowest level in 12 months. The Commission stated, "Consumers and businesses have become more pessimistic, fearing reduced spending, higher unemployment, and steeper inflation."

Economic growth forecasts for Europe are also being revised downward one after another. Germany's government advisory panel sharply lowered Germany's growth forecast for this year from 4.6% in November last year to 1.8% on this day. The panel stated in a release, "High dependence on Russian energy entails a recession accompanied by production declines and high inflation," urging, "All measures must be taken to prepare for a cutoff of Russian energy supplies." Austria's central bank also forecast that if the situation worsens in Ukraine, inflation could rise to 9% this year and economic growth could shrink to 0.4% in the worst case.

There is also speculation that Europe's long-standing zero interest rate policy may temporarily end this year. On this outlook, Germany's 10-year government bond yield rose to 0.7%, the highest in four years. Christine Lagarde, President of the European Central Bank (ECB), expressed concern in a speech in Cyprus, saying, "If the war lasts longer, more economic costs will occur, and we are more likely to face a more unfavorable scenario," adding, "This figure means a loss of about 150 billion euros per year."

This content was produced with the assistance of AI translation services.