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ECONOMY

Industrial output decline slowed in February

German industrial output fell 2.9 percent in February from January, the economy ministry said Thursday, as demand for goods from Europe's largest economy dried up amid the global recession.

Industrial output decline slowed in February
Photo: DPA

While the drop was still sharp, it was less intense than analysts had expected and represented a considerable improvement from the stunning 6.1 percent decline last month.

Economists had forecast a 3.4 percent drop in February and some analysts took the latest data as a sign that the worst could be over for Germany’s embattled industrial sector.

Martin Lueck from Swiss banking giant UBS said that it was “another very poor number, but less ugly” than the figures reported the previous month, which were the worst output data since German reunification in 1990.

“This data, albeit still incredibly poor, raises further hope that we may indeed be close to the bottom,” he said.

For its part, the ministry said the outlook for German industry was not bright.

“Given the still falling industrial orders, output will remain weak in the coming months,” the ministry said in a statement.

Data released Wednesday showed that industrial orders in Germany fell 3.5 percent in February from the January level.

Jennifer MacKeown from Capital Economics was less upbeat.

The figures “confirm that the sector is still in dire straits,” she said.

“The latest data clearly suggest that the recession is still in full swing,” she added, saying her forecast of a four percent fall in German gross domestic product (GDP) in 2009 looked increasingly over-optimistic.

Germany is facing its worst recession in over six decades, with the Organisation for Economic Cooperation and Development (OECD) predicting GDP in the world’s largest exporter will slump by more than five 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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