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ECONOMY

LBBW piles up loss of €2 billion

Germany's biggest stated-owned regional bank Landesbank Baden-Württemberg (LBBW) said Friday it was raising billions of euros in fresh capital and considering tapping a government rescue package after being hit by the financial crisis.

LBBW piles up loss of €2 billion
Photo: DPA

Stuttgart-based LBBW is bracing itself for an estimated loss of more than €2 billion for the coming financial year, shareholders told news agency DPA on Friday.

The bank has run up an €800 million debt in October alone, after contracting a loss of €900 million within the first nine months of the calendar year.

LBBW shareholders now hope to raise the equity ratio, which reflects the proportion between the bank’s own funds and issued credits, from 7.3 percent to 9 percent with a capital injection of €5 billion. Main stakeholders are the federal state of Baden-Württemberg and the German Savings Bank Association, each holding 35.6 per cent of the company.

LBBW also said it would consider tapping Chancellor Angela Merkel’s

€480-billion banking rescue package to secure between €10 and €15 billion

in loan guarantees.

“This is primarily being done in order to be able to ensure, in light of the current macroeconomic situation, a sustained supply of credit to the bank’s core markets in the future,” a statement said.

Germany’s statebanks have been major casualties of the financial crisis

after the loss of state-backed guarantees in 2005 prompted them to invest in

higher-risk financial instruments, many of which have since turned sour.

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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