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ECONOMY

German growth slowed sharply in 2008

The German economy slowed sharply last year as exports were hit by the global slowdown and consumption failed to gain ground, the Federal Statistics office said on Wednesday.

German growth slowed sharply in 2008
Photo: DPA

German gross domestic product grew by 1.3 percent last year, according to provisional figures released on Wednesday by the statistics office Destatis.

In 2007, the biggest European economy had grown by 2.5 percent, and economists polled by Dow Jones Newswires had expected an increase of 1.4 percent last year.

Germany, the world’s leading exporter, has been hit hard by the global economic slowdown and the euro’s rise in value against the dollar, which have curbed demand for its automobiles, household appliances and machine tools.

GDP shrank by 1.5-2.0 percent in the fourth quarter, which compared with the third quarter, was in line with suggestions from officials in recent weeks but underlined the problems facing Europe’s biggest economy.

Berlin still officially expects the economy to grow by 0.2 percent this year but Finance Minister Peer Steinbrück has already warned that it could shrink by up to 1.0 percent. A Finance Ministry source has said the economy could contract by up to 3.0

percent in 2009.

Germany also posted a public deficit equivalent to 0.1 percent of gross domestic product (GDP) last year, improving slightly on the the 2007 figure of 0.2 percent of GDP.

But Steinbrück was quoted by the Financial Times Deutschland on Wednesday as saying that the German public deficit would soar to more than four percent of GDP in 2010, breaching European Union rules.

“We will be well above four percent in 2010,” Steinbrück said in an interview with the Financial Times Deutschland. Under the EU’s Stability and Growth Pact, eurozone members are bound to maintain public deficits below 3.0 percent of GDP

A sharp increase in deficit spending would stem mainly from an economic stimulus package announced on Tuesday by Chancellor Angela Merkel. At €50 billion ($66 billion), it is the largest since 1945.

The plan includes €17-18 billion in investments in roads and schools, and €9 billion in tax cuts for firms and individuals. Other elements included a €100-billion loan guarantee programme to help German companies hobbled by tighter credit conditions.

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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