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FINANCE

Money ministers warn of hard times to come

Just one week ahead of national elections, both Germany’s finance and economy ministers warned of hard times to come after the vote on a Sunday night political talk show.

Money ministers warn of hard times to come
Doh! Photo: DPA

On ARD’s show “Anne Will,” Finance Minister Peer Steinbrück from the centre-left Social Democrats said the national budget will be tight.

“In the next year, if I remain finance minister, I will have to take on €100 billion in new debt instead of the planned €6 billion,” he said, adding that he therefore sees no realistic way to promise tax cuts as Chancellor Angela Merkel’s conservative Christian Democrats (CDU) and the pro-business Free Democrats (FDP) have during the election campaign.

Meanwhile Economy Minister Karl-Theodor zu Guttenberg from the CDU’s Bvarian sister party, the Christian Social Union (CSU), said it would be a “big task” to fill the budgetary gap.

“We won’t be able to delay saying that it will be a hard year,” he said. “We will have to do without one or two comforts.”

On Monday the Finance Ministry reported that tax revenue for August – excluding municipal taxes – sank by 9.9 percent compared to the same month last year.

The Federal Statistics Office (Destatis) also reported on Monday that public debt has increased by 5.7 percent since the end of 2008.

Meanwhile the head of the Bundesbank, Germany’s central bank, said Monday that the country would not recover from the financial crisis for another four years.

“The German economy will not reach the level of prosperity it enjoyed in 2008 until, probably, 2013,” Bundesbank President Axel Weber said in an interview with daily Frankfurter Rundschau.

“And the road up will be bumpy,” he said.

Nevertheless, he said the phase of “free fall” was behind Germany, which was hit especially hard by a slump in global demand as its economy is highly dependent on exports.

This year, output is set to shrink by between five and six percent, Chancellor Angela Merkel, seeking re-election on Sunday, said recently.

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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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