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ECONOMY

Merkel reveals details of second economic stimulus package

German Chancellor Angela Merkel has named details of a second economic stimulus package, according to daily Neue Presse on Friday.

Merkel reveals details of second economic stimulus package
A file photo of workers building a bridge in Thuringia. Photo: DPA

“A main focus will be investment in infrastructure, in schools, streets and the broadband network, for example,” Merkel told the Hanover paper, adding that the goal of package is to stimulate growth and employment. “It is close to my heart that development in the job market is at the centre of efforts,” she said.

The new stimulus package will not be voted on until January, though, and will be informally connected to the inauguration of US President-elect Barack Obama, she said.

Meanwhile Volker Kauder, head of the parliamentary group of Merkel’s conservative Christian Democrats (CDU), told financial daily Handelsblatt in an interview that a billion-euro programme for bridge renovations would be “desirable,” and could be carried out by the government. He also suggested bringing internet to “every town in our country.”

Peter Ramsauer, head of the parliamentary group of the Bavarian conservative CSU party, which has been highly critical of Merkel’s first stimulus package, told broadcaster Deutschlandfunk that her second package must include tax cuts. He also suggested spending more money in the western states in Germany, which some say have suffered as the government pumps funding into the ailing economy of the formerly communist eastern states. “We need a catch-up program,” he said.

Berlin has already created a package worth €31 billion to repair the ailing economy, but Merkel has been criticized for acting too slowly as the rest of Europe dove into new public spending plans.

The new package will be worth €40 billion, according to reports by Der Spiegel on Friday.

Recent economic reports have shown that the word’s third-largest economy is in a recession, with exports suffering and thousands of cut backs in key industries announced since the global financial crisis began.

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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