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ECONOMY

Shoppers spending cash despite recession

Despite the worst economic crisis since 1945, German consumers are ever more confident in the future and increasingly willing to part with their hard-earned cash, a closely-watched survey said on Monday.

Shoppers spending cash despite recession
Photo: DPA

The GfK consumer confidence index rose to an estimated 3.5 points in August from a revised 3.0 points in July, the GfK institute said in a statement.

A sub-index measuring consumers’ willingness to buy rose dramatically to 25.1 points from 14.5 points in July and from minus 26.2 in August 2008.

The institute said low inflation had made consumers more eager to rush out

and make purchases, in addition to a relatively stable labour market, despite the crisis.

Unemployment figures would play a key role in the future development of consumer sentiment, the GfK institute said.

“A long-lasting stabilisation of the consumer climate will depend on how the labour market develops in the future. If the unemployment figures climb

high in late autumn, this will be a test for consumer confidence,” GfK said.

The survey is the latest to suggest that Europe’s top economy could be rebounding from its worst slowdown in recent history.

A study by Ernst and Young published in daily Die Welt on Monday showed that two out of three firms in Germany believe the economy will improve by 2010, rising to nearly eight in ten companies seeing a brighter future by 2011.

Moreover, 54 percent of the businesses polled said that Germany was likely to emerge stronger after the crisis than it was before.

On Friday, a closely-watched survey by the Ifo institute, measuring the mood among German firms, rose for the fourth month running in July.

Nevertheless, the government still sees Germany – one of the world’s top exporters – shrinking by a record six percent this year.

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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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