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ECONOMY

German economy unexpectedly grows in second quarter

The German economy grew unexpectedly for the first time since early 2008 in the second quarter of this year, the Federal Statistics Office (Destatis) reported on Thursday.

German economy unexpectedly grows in second quarter
Photo: DPA

After Europe’s biggest economy was thrown into a deep recession by the global financial crisis, the downward spiral appears to have come to an abrupt end.

Gross domestic product was up by 0.3 percent from the first quarter, though adjusted comparison with the same quarter of last year showed a decrease of 5.9 percent in economic output, Destatis said from its headquarters in Wiesbaden.

“The stabilisation of the German economy in the second quarter turned out a bit better than we expected it would,“ Economy Minister Karl-Theodor zu Guttenberg said on Thursday. “They show that the worst part of the economic downturn is behind us.”

He said the positive data were proof the government’s stimulus programme was taking hold, but warned against being too euphoric in light of the dramatic economic collapse caused by the financial crisis.

Economists had predicted further shrinkage of about 0.2 percent for the second quarter after the economy shrank a record 3.5 percent in the first three months of 2009.

“Household and government final consumption expenditure and also capital formation in construction exerted a positive impact compared with the previous quarter,” a statement said.

Germany is the world’s third largest exporter and its trade balance, which showed a sharper decline in imports than exports, also had a positive effect on the figures. But lowered inventories had the opposite effect.

Meanwhile the jump in growth occurred with a reduction of 25,000 workers compared to the same time last year. Current figures show Germany has a workforce of 40.2 million.

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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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