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ECONOMY

Steinbrück mulling state loans to combat credit crunch

German Finance Minister Peer Steinbrück said on Wednesday he was considering giving low-interest state loans to cash-strapped firms in order to prevent a credit crunch hampering a recovery in Europe's biggest economy.

Steinbrück mulling state loans to combat credit crunch
Photo: DPA

“If the efforts of banks are not sufficient to supply the economy with enough fresh cash, the state will have to make use of other measures,” Peer Steinbrück told the Handelsblatt business daily in an interview.

“This includes putting the (state development bank) KfW in a position to give loans to banks but with the clear condition that the low interest rates are passed completely and verifiably on to the companies,” he said.

Steinbrück said that other instruments could include state export guarantees and government help for credit insurers.

“There is no proof of a comprehensive credit crunch across the whole economy but in some sectors – electronics, machinery, suppliers, chemicals and shipbuilding – conditions have definitely worsened,” Steinbrück said.

“We also have clear signs that things are tight for very small and big firms,” he said.

Germany exited its worst recession in six decades with growth of 0.3 percent in the three months to June but economists and companies have warned that the reticence of banks to lend money was hampering a continued recovery.

The paper cited an Economy Ministry report as saying that loans in the second quarter were up 0.2 percent compared to the previous three months, and that year-on-year the increase was 4.3 percent. Interest rates were up 0.35 percentage points in June, the newspaper noted.

Steinbrück also hit out at banks and institutional investors following the recent sharp rises on stock markets, saying they “obviously prefer putting money in shares than doling out loans.

“I see this as evidence that the gambling mentality is winning the upper hand again after two years of financial market crisis,” he said.

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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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