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ECONOMY

Investor confidence returning in Germany

A survey suggesting soaring investor confidence provided more cheer for the German economy on Tuesday, less than a week after data showed its worst recession in decades ending sooner than expected.

Investor confidence returning in Germany
Photo: DPA

The closely watched ZEW index rose 16.6 points to reach a three-year high of 56.1 points, smashing expectations by economists polled by Dow Jones Newswires of an increase to 47.3 points.

“Positive growth figures for German gross domestic product (GDP) in the second quarter have improved financial experts’ assessments of economic conditions,” the ZEW said.

“Another rise in industrial orders and exports growing again is brightening Germany’s economic prospects. As a result, business expectations for all sectors, in particular for exporters, have noticeably improved,” it said.

Last Thursday, official data showed GDP growing 0.3 percent in the second quarter from the previous quarter, the first expansion in Europe’s biggest economy since the first three months of 2008.

Figures the same day showed fellow European heavyweight France also emerging from recession, and on Monday data in Japan showed the world’s second biggest economy after the United States growing for the first time in over a year.

Other figures have also given grounds for optimism, with exports – the backbone of the German economy – rising seven percent in June compared to the previous month and industrial orders jumping 4.5 percent.

Brightening prospects for Germany have also helped to boost Chancellor Angela Merkel’s chances of securing a second term in general elections on September 27.

Jennifer McKeown at Capital Economics said the ZEW survey, which means that an increasing majority of investors expect conditions to improve in the next six months than expect them to worsen, is “another pretty encouraging sign.”

“On the face of it, this suggests that the increase in economic activity in the second quarter might become a sustained recovery,” McKeown said in a research note.

However, she cautioned that a sub-index showed investors still downbeat about current conditions and that it would be better to wait for more evidence of an upswing.

“There is no reason for euphoria,” ZEW chairman Wolfgang Franz said. “The German economy is dependent on developments in the global economy and should therefore recover only gradually.”

“The German economy is out of recession, but not out of the woods yet. The second quarter ended a record period of four consecutive quarters with negative growth,” said ING economist Carsten Brzeski.

“In all the enthusiasm about the recent numbers and the near term outlook, there are still some impediments to a real recovery, the most pressing one being the worsening labour market.”

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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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