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ECONOMY

Hypo Real Estate gets first cash injection

Troubled German property lender Hypo Real Estate has obtained a €15 billion ($19.3 billion) state loan guarantee under the government rescue plan for the banking sector, a spokesman said late on Thursday.

Hypo Real Estate gets first cash injection
Photo: DPA

The guarantee provided by the Financial Markets Stabilization Fund (SoFFin) will cover a bank bond that HRE will use as collateral to get cash from the central Bundesbank. HRE needs the funds to maintain current operations. It is the first private German financial institution to take advantage of a government package offering up to €400 billion in loan guarantees and up to €80 billion in capital injections.

German regional bank BayernLB has also applied for the aid, with a request for €5.4 billion, while other regional banks have said they are mulling requests as well.

In morning trading on the Frankfurt stock exchange, HRE shares slipped by 0.76 percent to €5.23, while the Dax index of German blue-chips was off by 1.44 percent overall.

The real estate specialist was caught in a liquidity crunch which worsened after US investment bank Lehman Brothers declared bankruptcy in September. HRE is already the subject of a rescue plan worked out by the government, the German central bank and a financing consortium worth €50 billion, and the short-term guarantee unveiled late on Thursday will keep HRE going until the full sum is available. “It is envisaged to provide the full extent of liquidity facilities by mid-November,” a statement said.

The HRE rescue earlier this month was the biggest in German history and came after the real-estate lender was drawn into global financial turmoil, through its inability to refinance debt, one of several high-profile European emergency cases.

HRE was hobbled by debts incurred by a German-Irish subsidiary, Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for high-risk, or subprime, mortgages.

Depfa specialises in the financing of public works projects. The parent real-estate bank found itself unable to refinance operations owing to a credit squeeze that worsened after Lehman Brothers declared bankruptcy on September 15.

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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