Due to the Ukraine War, the German Government Increases Debt and Lowers Growth Rate Forecasts

Olaf Scholz, German Chancellor [Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] According to Bloomberg News on the 24th (local time), the German government plans to increase this year's new government debt by nearly 40 billion euros (approximately 53.7988 trillion won) more than originally planned, considering the expanded fiscal spending due to the Ukraine war.

According to officials, a proposal to increase this year's new government debt from 100 billion euros to 140 billion euros is expected to be submitted to the cabinet on the 27th.

The German government has already increased government debt by 131 billion euros and 215 billion euros respectively over the past two years due to COVID-19.

Germany has traditionally strictly limited the expansion of government debt, but over the past two years, it had no choice but to increase debt due to COVID-19. This year, with the outbreak of the Ukraine war, it has become inevitable to increase debt again.

The German coalition government has decided to temporarily suspend the constitutional regulation that limits new debt expansion for three consecutive years.

The Ukraine war is expected to deal a significant blow to the German economy because Russia is a major energy supplier to Germany. According to the German government, before the Ukraine war, Russia accounted for 55% of Germany's gas imports. For this reason, the German government opposes restricting Russian gas imports despite the Ukraine war.

Germany's central bank, the Bundesbank, stated in its monthly report on the 22nd that if the European Union (EU) bans Russian gas imports, Germany's GDP could shrink by about 5% this year, pushing the German economy into a recession.

Although measures to restrict Russian gas imports have not yet been taken, the Ukraine war has already caused a sharp rise in energy prices, impacting the German economy. The German government is scheduled to release new economic forecasts on the 27th, and according to officials, this year's economic growth forecast is expected to be sharply revised downward from 3.6% to 2.2%. Officials explained that the German government will lower the growth forecast to reflect the shock caused by rising energy prices.

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