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ECONOMY

March car sales up by 40 percent after scrapping premium ‘frenzy’

German auto sales shot up 40 percent in March compared with the same month in 2008 in what analysts on Thursday called a "shopping frenzy" that will lighten the recession in Europe's top economy.

March car sales up by 40 percent after scrapping premium 'frenzy'
Photo: DPA

The VDA automobile federation said sales in March rose to 401,000 vehicles, explaining the rise was due to a government bonus for scrapping old cars for newer, greener models as well as a higher number of business days this year.

The rise was the most impressive since 1992 during an economic boom that followed German reunification, VDA said, also warning that sales would slow down as the initial rush of scrapping bonus applications thins out.

The environmental bonus, as it is also known, will be phased out at the end of the year.

German economic analysts from Italian banking group Unicredit said in a research note that “something has started which had not occurred for a long time in Germany: a shopping frenzy.”

“Applications for the car-scrapping premium literally skyrocketed, exceeding one million,” they added. But the Unicredit analysts also warned this did not mean an end to recession and said there would be more gloomy data to come.

Alexander Koch from Unicredit said the increase in car sales “should bring some desperately needed support for the economy in the first quarter,” adding more than one percent to quarterly gross domestic product (GDP).

But the car scrapping bonus will only be successful “in the short run,” he said, adding that there could be setbacks later in the year. “The party… will inevitably be followed by a hangover,” he warned.

The programme began in February to help the auto industry cope with recession, and offers motorists a €2,500 ($3,300) bonus to trade in their old car for a new, more environmentally friendly model.

Since Monday, interest has soared as a new application procedure became available online, with total requests running up to 941,289, the Federal Office of Economics and Export Control (Bafa) said on Wednesday.

Launched as part of the country’s second economic stimulus package, the car scrapping bonus for any car at least nine years old was initially to be limited to 600,000 applicants, about one-fifth of Germany’s normal annual car sales.

It has had an immediate impact on sales, which jumped 21.5 percent in February, bucking a downturn which has seen huge reductions elsewhere in Europe and prompting other countries to consider similar schemes.

German Chancellor Angela Merkel and her coalition partner Foreign Minister Frank-Walter Steinmeier have agreed to extend the programme until the end of the year but details of the extension have not been finalised.

Germany has been badly hit by the global slump and the economy is expected to contract by much more than the current forecast of 2.25 percent this 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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