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ECONOMY

Government may extend scrapping bonus next week

The German government must still decide if it will prolong a popular €2,500 car scrapping bonus at its current value, a spokesman for Chancellor Angela Merkel said on Friday.

Government may extend scrapping bonus next week
Photo: DPA

Goldman Sachs analyst Dirk Schumacher said “the government is getting cold feet now about the fiscal consequences” and the business daily Handelsblatt said the government had agreed on a new bonus of €1,250.

The “cash for clunkers” scheme, as one newspaper put it, is worth around $3,300 and was expected to be extended to the end of the year, but “no decision has been taken yet,” government spokesperson Thomas Steg told a news conference.

Government ministers would make up their minds at a cabinet meeting on Wednesday, he said.

Sources close to the coalition government said Thursday that the wreckage premium might be reduced after public response was much stronger than expected, with one analyst calling it “a shopping frenzy.”

An initial budget of €1.5 billion was approved to cover state subsidies for the purchase of 600,000 cars, but as of this week, more than one million applications had been filed.

Purchasers of a car no more than one year old must scrap their cars which are at least nine years old to qualify for the payment, and demand has focused on smaller autos while leaving brands like BMW and Mercedes on the sidelines.

In March German auto sales surged 40 percent from the same month a year earlier to 401,000 vehicles, partly owing also to a greater number of business days this year.

In February, the first full month the plan was effective, German new car sales jumped by 21.5 percent, while falling elsewhere in the 16-nation eurozone.

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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