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ECONOMY

Auto sales surge on junk car premium

German new car sales leapt by 22 percent in February from the same month a year earlier, mainly owing to a bonus offered to those who turned in old cars, while exports slumped, figures released Tuesday by the sector federation VDA showed.

A total of 277,800 vehicles were sold in Germany last month, according to the VDA data, “the strongest level of February sales in 10 years,” federation president Matthias Wissmann was quoted as saying.

“We expect domestic sales will be higher for the entire first quarter,” Wissmann said.

The jump was explained by a government incentive worth €2,500 ($3,150) to scrap an old clunker for a new car that pollutes less and keeps German automakers going during a severe sector crisis worldwide.

A modification of an environment tax on cars, which is now based in part on the vehicle’s carbon dioxide emissions, also boosted sales, VDA said.

“New car registrations have swung back into positive territory for the first time in six months,” the statement said. “We may be able to reach the level of three million this year, despite the difficult environment,” it added in a tone that contrasted sharply with global gloom that pervades the sector in general.

Until now, VDA had forecast full-year sales of 2.9 million vehicles in 2009, which would represent a drop of 6.0 percent from the level in 2007. Export sales, which used to be the market’s main source of support, collapsed in February, losing 51 percent while production was cut by 47 percent, VDA said.

But for the moment, domestic sales were giving German automakers a fillip. Opel, plunged into crisis by struggling parent US giant General Motors, said last month it was increasing output at a plant because of strong demand for its Corsa compact model.

Germany, the biggest European economy, has done better so far than many other major auto producing nations.

In France, new car registrations have fallen by 13.1 percent despite a similar government incentive, while in Spain they were off by 48.8 percent and in Japan by 32.4 percent.

Wissmann acknowledged that “we are far from a sustainable rebound in global auto markets,” and German car makers have cut back on temporary workforces to adapt to falling demand by reducing their stocks.

But he remained optimistic and said that if the German government’s plan were replicated elsewhere, “we might see a rebound in global auto sales in the second half of the year.”

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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