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ECONOMY

Porsche profits increase dramatically

German luxury car maker Porsche said Tuesday that its first-half profit leapt fourfold owing to its stake in Volkswagen, but that auto sales were down and it could not give a full-year forecast.

Porsche profits increase dramatically
Photo: DPA

Porsche’s net profit jumped to €5.5 billion ($7.3 billion) in the six months from August to January, mainly as a result of a spike in the value of VW shares in October, the company said.

Porsche owns 50 percent of VW, the biggest European car maker, and wants to raise that holding to 75 percent.

Pre-tax profit climbed to €7.34 billion from €1.66 billion, a result that also stemmed largely from transactions in cash-settled options on VW shares.

Cash-settled options are stock option contracts under which settlement is done via the payment of cash equal to the difference between the market value and the contractual value when the option is exercised or expires.

Porsche has used such VW-based instruments to make huge profits in the past two years.

Porsche car sales fell meanwhile, by 9.2 percent on a 12-month basis, to €3.32 billion.

The company said that no reliable forecast for the near term was possible, with neither Porsche nor VW able to escape the effects of a sector-wide slump, although VW expected to do better than rivals.

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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