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ECONOMY

Steinbrück rejects auto industry rescue plan

German Finance Minister Peer Steinbrück has rejected a financial rescue package for the country’s ailing auto sector on Monday ahead of an emergency meeting about automaker Opel’s dire financial state.

Steinbrück rejects auto industry rescue plan
Photo: DPA

“An emergency economic programme for the entire automobile industry doesn’t make sense,” Steinbrück told daily Bild on Monday. “The state cannot replace private buying power, and also isn’t responsible for the mistakes of the industry.”

Economy Minister Michael Glos also told the paper that saving Opel – which recently asked the German government for a bail out after US parent company General Motors revealed it was close to bankruptcy – would be an exception. “The case of Opel is an exception and should be treated as such,” he told Bild, adding that he feared “more and more companies at over-capacity will seek a state emergency help.”

The German auto industry has been severely wounded by the international financial crisis, with manufacturers rolling back production schedules to make ends meet in recent weeks.

Directors at Opel, which has some 25,000 workers, will meet with Chancellor Angela Merkel on Monday.

Auto industry expert Ferdinand Dudenhöffer warned however, that there would be drastic job losses if the government didn’t help Opel, telling broadcaster Bayern2 that is was an “extraordinary situation.”

Berlin cannot stand by when more than 100,000 jobs could be lost if the company fails, he said, adding that smaller companies that work with Opel and GM would “drive into the wall,” without state help. But Germany should only help Opel if the US agrees to help GM, he said.

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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