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ECONOMY

Bundesbank expects only modest German growth

The Bundesbank said on Monday it expected only modest growth for Germany in the coming months following the scorching rate of expansion the world’s third-largest economy notched in the first quarter of 2008.

Bundesbank expects only modest German growth
Photo: DPA

Germany’s central bank said in its monthly report that the global financial crisis, the strong euro and high oil prices would hamper exports and the prospects for growth. But the German economy still had a “solid fundamental dynamic” underpinning its expansion.

Many economists are forecasting Germany will see its third consecutive year of growth over 2 percent after chalking up 1.5 percent growth in the first three months of the year – the most in twelve years. But the Bundesbank is so far sticking with its forecast of 1.9 percent for 2009.

The cracking performance in the first quarter “will not continue in the future by itself,” since there were exceptional factors boosting growth. The bank’s report said the mild winter almost entirely eliminated the construction industry’s traditional slowdown, and an early Easter this year helped increase retail sales. Despite the cautionary tone, the Bundesbank said the good start this year showed “what potential the German economy still has after an almost four year upswing.”

But the central bankers also pointed out that even though Germany has been growing in recent years, it is still falling behind the United States in terms of absolute wealth.

In 2007, per capital income in America was some 27 percent higher than in Germany. That puts Germany only slightly ahead of the euro-zone average of $28,200 (€18,092), which is 30 percent lower than in the United States.

“The gap is therefore still as large as it was towards the end of the 1990s,” said the Bundesbank. “The income gap comparison between the USA and Germany also hasn’t become any smaller.”

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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