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ECONOMY

Exports plunge as global recession bites

German exports plunged in November at their sharpest rate since 1990, data showed Thursday, as the global recession pulled the plug on demand for goods from the world's biggest exporter.

Exports plunge as global recession bites
Quite time at the Hamburg harbour. Photo: DPA

Seasonally adjusted exports in Germany, Europe’s biggest economy, dropped 10.6 percent from the previous month, the statistics office Destatis said in a statement.

The “dramatically bad” fall was the biggest drop since East and West Germany were united in 1990, Commerzbank economist Jörg Krämer noted, saying the decline was across the board.

Compared to November last year, the figures were equally bad: exports plunged 11.8 percent to €77.1 billion ($96.2 billion). Imports slid 0.9 percent to €67.4 billion. As a result, Germany’s trade surplus contracted sharply in November, falling to €9.7 billion from €16.4 billion in October.

The country’s current account, its broadest measure of trade in goods and services with other nations, also fell markedly to €8.6 billion from €14.3 billion the previous month, the Destatis service said.

Those results were well below forecasts of analysts polled by Dow Jones Newswires, who had expected a trade surplus of €16.2 billion and a current account surplus of €17.0 billion.

Germany, which has a economy highly dependent on exports, has been slammed by the sharp slowdown in economic activity in key markets in the United States, Europe and Asia.

Krämer said the collapse in exports underpinned his bank’s forecast that German output would decline by a record 2.0 percent in the fourth quarter of 2008 from the previous three-month period.

The country is already in recession after gross domestic product contracted in the second and third quarters of last year.

“For 2009 as a whole we continue to expect German GDP to decline between 2.0 and 3.0 percent,” the Commerzbank economist said.

The German economy ministry has not ruled out the possibility that economic activity could shrink by up to 3.0 percent.

Krämer also pointed to comments by European Central Bank President Jean-Claude Trichet in an interview released on Thursday, which noted a “significant deterioration” in the growth outlook.

The comments will likely raise expectations of a fourth ECB successive interest rate cut next week from the current benchmark level of 2.50 percent.

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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