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ECONOMY

Berlin planning ‘targeted measures’ to boost economy

Berlin plans "targeted measures" to boost Europe's largest economy but no major stimulus package in response to the financial crisis and slowing growth, the government said on Monday.

Berlin planning 'targeted measures' to boost economy
Photo: DPA

Chancellor Angela Merkel asked the economy and finance ministers at a cabinet meeting on Monday to develop ideas by early November to boost certain industries hit by the crisis, her spokesman Thomas Steg said.

“The chancellor spoke out (at the cabinet meeting) specifically against a vague, traditional, wide-ranging credit and economic programme financed by new borrowing,” Steg told a regular news conference.

“But what could be helpful in this situation are very precise, very targeted measures to stimulate investment for certain industries,” Steg said, adding that these should be “convincing, affordable and first and foremost can be put into place quickly.”

The cabinet will then decide on which measures to take while drawing up its 2009 budget, which is due to be finalised next month, Steg said. He said that, for now at least, Berlin was still aiming for a balanced federal budget by 2011.

German lawmakers passed last week a €480-billion ($650-billion) rescue package for the country’s banks aimed at providing capital to cash-strapped lenders and guaranteeing loans.

“The financial stability package is itself already an impulse for the real economy, something that will stabilise the economy and growth in Germany,” Steg said.

Media reports said on Monday that the measures being considered included tax breaks for low-emissions cars and state guarantees on loans to small and medium sized companies. Steg said that no specific measures were discussed by the cabinet on Monday.

On Thursday, Economy Minister Michael Glos slashed his forecast for 2009 growth to just 0.2 percent from his previous projection of 1.2 percent, the slowest rate of growth since the 2003 recession when output shrank 0.2 percent.

But the ministry’s predictions were more optimistic than some: earlier last week leading economic think tanks drew up a worst-case scenario whereby German GDP could actually contract by as much as 0.8 percent in 2009.

Deutsche Bank meanwhile forecasts that output in Germany – which makes up around a third of the eurozone economy – will shrink by 1.5 percent in 2009 and that the eurozone as a whole will contract by 1.4 percent, the Financial Times Deutschland said.

According to the Bundesbank in its latest monthly report, the German probably stagnated in the third quarter. “In view of the sharp slowdown in global economic growth and increased uncertainty resulting from the crisis on the international financial markets, the German economy likely stagnated in the third quarter,” the central bank wrote in its October report.

In the second quarter of 2008, German gross domestic product (GDP) shrank by 0.5 percent on a quarterly basis and a number of economists had been forecasting a further drop in the second quarter.

The technical definition of recession is two consecutive quarters of negative growth.

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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