(Bloomberg) -- Germany’s 65 billion-euro ($64 billion) of aid to help citizens deal with high energy prices probably won’t stave off an economic downturn, according to ING Groep NV.
“While the announced package will indeed bring some relief for the financially weaker ones, it is doubtful that the package will be enough to offset the impact from higher energy bills entirely,” ING economist Carsten Brzeski said Monday in a report to clients.
Among the slew of measures announced Sunday by Chancellor Olaf Scholz’s government are higher subsidies for lower-income households, payments to students and pensioners, and a cap on power prices. It also promised to back a European Union effort to tax windfall profits as surging earnings at some energy firms spark public outrage.
But with some crucial elements still being finalized, the full package may not become operational this year, Brzeski said. And with little support for companies or households that don’t receive social transfers, “the package will probably fall short in preventing the broader economy from falling into recession.”
Commerzbank economist Joerg Kraemer, meanwhile, warned that the measures create the “illusion that large parts of the population can be shielded from the fallout of rising energy prices.” Together with maxed-out production capacities, such an approach risks further fueling already elevated consumer prices, he said.
A reduction of household power bills by 10 billion euros may reduce headline inflation by 0.6 percentage point, according to a “back-of-the-envelope calculation” by JPMorgan Chase & Co. economist Greg Fuzesi. At the same time, “there are too many questions at this point to gauge the exact impact on inflation, including about timing.”
While the package is “encouraging” from a growth perspective, the halt to gas flows through the Nord Stream 1 pipeline means “new risks may be materializing,” he said in a note.
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