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ECONOMY

German industrial output falls again

German industrial production declined further in April, the ministry of industry said Friday, another sign that Europe's biggest economy is slowing down.

German industrial output falls again
Photo: DPA

Output showed a surprise decrease of 0.8 percent compared to the previous month, the ministry said, the same rate as in March, which was revised lower from an initial estimate of a 0.5 percent decrease. Analysts polled by Dow Jones Newswires had expected no change in April.

The Economy Ministry said industrial orders had fallen for the fifth straight month in April, declining by 1.8 percent on a monthly basis after a fall of 0.5 percent in March.

Weak construction activity weighed in particular on the results released on Friday, with output decreasing by 2.9 percent after a mild winter moved up work that would normally rebound in the spring. But manufacturing activity also fell by 0.7 percent, and energy output shed 1.7 percent following a gain of 3.4 percent in March.

The ministry presented two-month data designed to smooth out potential discrepancies, and these showed that overall industrial production in March and April had fallen by 1.2 percent from the January-February period.

An annual comparison revealed however that industrial activity had gained 4.5 percent in March and April compared with the same period in 2007. The figures suggested the German economy was headed for a slowdown following a first quarter that was surprisingly strong.

“In the coming months, one must expect slightly more restrained production,” a ministry statement said.

At Capital Economics, European economist Jennifer McKeown said the April drop was “a clear sign that the previously strong (industrial) sector is beginning to falter.”

For Andreas Rees at UniCredit Markets: “The signs of a slowdown even in the so far resilient manufacturing sector are unmistakable.”

Bank of America’s Holger Schmieding said bluntly: “The boom is over. Just as the European Central Bank is shocking markets by pointing to a rate increase in July, the pillars of the economic upswing are crumbling.”

On Thursday, ECB president Jean-Claude Trichet caught markets by surprise when he said the bank might raise its main lending rate slightly next month to contain expectations that eurozone inflation could leap higher than the record 3.6 percent posted in May.

That would dampen economic activity, which Schmieding forecast would now “expand hardly at all in the next two quarters,” since German manufacturing had been the main reason why eurozone growth had thus far proven resilient to high oil prices, a rise of the euro against the dollar and tighter credit conditions.

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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