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ECONOMY

Germany slashes 2009 growth forecast

The German government on Thursday slashed its growth forecast for 2009 – the world’s third largest economy is now only expected to expand by a meagre 0.2 percent next year.

Germany slashes 2009 growth forecast
Photo: DPA

Economy Minister Michael Glos announced at a press conference in Berlin that the government still expected gross domestic product (GDP) to grow by 1.7 percent this year, however, the outlook for next year was grim.

“We already see the economy’s first skid marks,” Glos said. “There’s nothing to sugarcoat or keep quiet.”

Before the crisis currently rocking world financial markets Berlin had been expecting growth of 1.7 percent next year. The German economy grew by 2.5 percent in 2007.

The revised growth forecast brings the government’s expectations in line with the country’s leading economic institutes, which on Tuesday warned Germany was teetering “on the brink of recession” in their annual autumn outlook.

The institutes cited the global financial crisis, collapsing real estate bubble and inflationary pressures as the biggest dangers to the German economy – which is heavily dependent on exports.

“The risk that aforementioned conditions could worsen has increased in recent weeks,” the institutes wrote in their highly anticipated economic report.

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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