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EUROPEAN UNION

Ifo sees recession through 2010

Germany's export-oriented economy will be dragged down by the financial crisis next year and contract by 2.2 percent, the Ifo economic institute forecast on Thursday.

Ifo sees recession through 2010
Photo: DPA

“The German economy, which because of its trade orientation had benefited from the strong upswing in the global economy, now conversely is being pulled under by the … financial crisis,” Ifo said in a statement.

“On average for the year, real GDP (gross domestic product) … will decline by 2.2 percent. In the wake of the world recession, exports will be reduced drastically,” it added.

Berlin’s current forecast for next year is for 0.2 percent growth but with Germany having already entered a technical recession in the third quarter, many economists have already issued much bleaker forecasts.

The German central bank has estimated that Europe’s biggest economy will shrink 0.8 percent in 2009. For 2008, the government sees growth of 1.7 percent, while Ifo put it at only 1.5 percent.

Ifo said that “stabilisation is not expected until 2010, with the gradual subsiding of the financial crisis,” with the economy likely to contract 0.2 percent that year.

In October, a group of leading institutes to which Ifo belongs, forecast 1.8 percent growth in 2008 and 0.2 percent growth in 2009. The economy contracted in the second and third quarters of 2008 however, plunging the country into a technical recession that many expect to be deep and prolonged.

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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