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ANGELA MERKEL

Merkel defends Germany’s dependence on exports

Chancellor Angela Merkel defended on Monday Germany's heavy dependence on exports that has made Europe's largest economy one of the biggest casualties of the global recession.

Merkel defends Germany's dependence on exports
Photo: DPA

“Are we too dependent on exports? I believe there is no alternative to being a country with strong exports,” Merkel told a conference of the country’s main industry association, the BDI.

“Otherwise we are putting our standard of living at risk,” she said.

Germany is the world’s biggest exporter of goods, with particular strength in machinery, chemicals and cars, and has been hit hard by the collapse in demand around the world for its products.

The German government expects the economy to shrink by around six percent this year, the second biggest slump among advanced economies after Japan. Merkel reiterated that it was important to tackle the causes of the financial crisis and the global downturn, implementing decisions made at a summit of the Group of 20 major economies in London in April.

“We have a huge interest in tackling the causes of this crisis,” she said.

Economy Minister Karl-Theodor zu Guttenberg, speaking at the same event, agreed, saying “a broad industrial base is irreplaceable and unavoidable for Germany.”

Merkel also rejected widespread criticism from firms, experts and other countries that her government was slow to act when the financial crisis hit the global economy in 2008, or that it was not doing enough.

Germany’s two stimulus packages, combined worth more than €80 billion ($111 billion), are also boosting demand for imports from other countries, “which is of clear benefit to the world economy,” Merkel said.

The conservative chancellor, running for a second term in general elections on September 27, also defended supporting a rescue of General Motors’ Opel unit with taxpayers’ money while letting retailer Arcandor file for insolvency.

Arcandor, she said, was in trouble before the crisis hit Germany last year, and therefore is not entitled to receive funds and loan guarantees from a government package set up to help German firms through the downturn.

“It was not linked to the financial crisis. It may have exacerbated the problems, but there were weaknesses before the crisis,” she said. “And insolvency does not have to mean that the company or jobs… will disappear.”

Letting Opel file for insolvency would have been too complex, however, because of its ties to GM and due to differences in regulations among other European countries where GM has factories like Britain or Spain, she said.

Merkel’s government decided last month, days before GM filed for bankruptcy protection in the US, to support a Russian-financed takeover of Opel by Canadian auto parts maker Magna with state loans and loan guarantees.

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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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