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BUSINESS

Subprime crisis hits earnings at Deutsche Post

German logistics group Deutsche Post reported a wider-than-expected 18.4 percent drop in first quarter earnings on Wednesday as turbulence on financial markets hit earnings at its Postbank banking unit.

Subprime crisis hits earnings at Deutsche Post
Photo: DPA

The fall in net profit to €407 million ($629 million) – analysts polled by Thomson Financial News had forecast €455 million – was also due to the period having two fewer working days, a statement said.

Operating income for the first three months fell 14.7 percent to €851 million, while revenues grew 1.8 percent to €15.7 billion. The weak dollar and pound helped shave more than four percentage points off revenue growth.

As reported on May 8, turbulence in financial markets stemming from the collapse of the US subprime mortgage market led to operating profit falling by more than a fifth at Postbank in the first three months of the year.

Deutsche Post said it was sticking to its target of operating income before one-off items of around €4.2 billion for the whole of 2008, and of €4.7 billion for 2009.

The company announced it would set a turnaround plan within the next two weeks for its troubled US division, which saw further problems in the first quarter.

Post chief executive officer Frank Appel said in early March that a retreat from the US unit was not an option.

afp/dpa/ddp

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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