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ECONOMY

VW welcomes Porsche takeover while thinking global

Germany's Volkswagen, Europe's biggest car company, vowed Thursday to become "the best auto manufacturer in the world" and welcomed a looming takeover by luxury carmaker Porsche.

VW welcomes Porsche takeover while thinking global

VW also said that early 2008 sales underpinned a trend that saw the group post record results last year, while chairman Martin Winterkorn told reporters at VW’s headquarters in Wolfsburg that “we are pleased” Porsche planned to raise its VW holding to more than 50 percent from around 31 percent at present.

“The Piech and Porsche families have written automobile history. They have been closely associated with the Volkswagen group for a long time,” Winterkorn said in reference also to Ferdinand Piech, a former VW boss who currently heads the Porsche supervisory board.

“A new automobile enterprise is now taking shape that will open an entirely new era,” Winterkorn stressed. “Our competitors understand the enormous potential of this partnership.”

“We know a player is emerging here that with its reach, its profitability and and its innovative force, will be the best auto manufacturer in the world.”

Porsche’s pending takeover of VW has been strongly opposed by unions who fear VW workers will lose considerable influence over the combined group. Meanwhile, the German auto giant forecast improved sales and operating profit this year from the record levels reached in 2007.

In January and February, sales of all VW brands had already gained 10.5 percent to 952,000 units, on strong results from VW vehicles, which gained 12 percent, the Czech-made Skoda, up by 18 percent, and utility vehicles which advanced by 18 percent as well, according to figures released at a press conference.

Sales early last year had been hampered however by a marked increase in the German value-added tax. But the numbers allowed VW to reaffirm its goal of increasing 2008 sales and operating profit, the company said, without providing detailed figures.

VW is counting on stronger results from emerging economies, while markets in western Europe and the United States were expected to stagnate.

For 2007, VW had already posted in late February an 50 percent jump in net profit to €4.1 billion and launched its “Strategy 2018” plan aimed at passing Japanese rival Toyota and becoming the world’s biggest auto manufacturer by that date.

Pre-tax profit, the group’s benchmark, had shot past its target of €5.1 billion to €6.5 billion last year.

All of VW’s eight brands posted positive results, the company said on Thursday, including the weaker Spanish Seat division, which turned in a small operating profit of €8 million.

Audi, the group’s high-end line, contributed €2.7 billion to the overall results.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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