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ECONOMY

Germans squeezed by rising levels of debt

Though German consumers aren’t as leveraged as their American counterparts, a study released Friday shows that many are sinking deeper into debt.

Germans squeezed by rising levels of debt
Photo: DPA

The average heavily indebted German is between 35 and 45 years old, has €36,000 in debts, and an income of under €900 a month, according to the report issued by a group of charities and consumer organisations.

Even younger Germans are falling into the debt trap. Eleven percent of 18 to 24-year-olds have an average of €1,400 in debt, said Svenja Koch of the German Red Cross, one of the study’s co-sponsors. The report said rampant consumerism is partially to blame for growing debt.

“Many families are overburdened and can’t deal with money because they’re putting the fulfillment of consumer wishes in the forefront,” said Rainer Brückers, head of the Workers‘ Charity.

While German banks have received billions in government assistance, indebted consumers haven’t gotten any help, said Gerd Billen, head of the German Association of Consumers.

According to the consumer research organisation Stiftung Warentest, German banks have also not passed along the current record low interest rates to their customers. As a result, banks have pocketed an extra €1.3 billion in profits, the report said.

The report’s six co-sponsoring organisations say the financial sector should lower interest rates for consumers and develop more flexible repayment terms, especially for those who lose their jobs or have their working hours cut.

The report’s authors say the data was collected in 2007, before the world financial crisis and the worst recession to hit Germany in over 60 years. The authors believe that rising unemployment will only lead to more personal bankruptcies and a cut in state funding for debt repayment advising.

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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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