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ECONOMY

BMW motors ahead despite strong euro

German luxury car maker BMW said on Tuesday it was aiming for higher profits this year despite the strong euro and weak US economy, which could crimp export earnings.

The group “again faces some major challenges in the current year as a result of the strong euro, a weaker US economy and continuing high raw material prices,” the company said in a statement.

Pre-tax profit should nonetheless grow, excluding exceptional items, and sales were expected to exceed the record 2007 level of 1.5 million vehicles, chief executive Norbert Reithofer told a press conference.

Last week, BMW announced that it had met its 2007 targets, with net profit of €3.13 billion, a sharp gain that was boosted by German tax reforms. Pre-tax profit however was down 6.1 percent to €3.87 billion after the 2006 figure got an exceptional boost of €372 million from the settlement of a convertible bond operation backed by shares in British jet engine maker Rolls Royce.

BMW has suffered from the euro’s rise to record highs against the dollar and it booked a foreign exchange charge of €517 million last year following one of €666 million in 2006. It is said to be the most exposed auto manufacturer to currency fluctuations because the United States is its biggest export market.

“BMW is the most successful European (auto) manufacturer in the American market,” Reithover said Tuesday. “That is why the dollar’s persistent weakness hits us harder than competitors.”

On Tuesday, the company also announced a new share buy-back programme that could cover as much as 10 percent of its equity. It must be approved by a general assembly of shareholders.

Like German rivals Daimler and Volkswagen, BMW has made the development of cleaner, environmentally friendly cars a top priority.

“Electric motors are an option for us,” Reithofer said. “We will make a decision this year.”

The company must offer by 2012 a vehicle that emits no carbon dioxide to maintain its official rating as a “large vehicle manufacturer” in the US market.

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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