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ECONOMY

Germany facing bumpy economic recovery

Germany's economic recovery following the worst recession in 60 years looks to be gradual and bumpy, a closely-watched confidence survey suggested on Tuesday.

Germany facing bumpy economic recovery
Photo: DPA

The ZEW index, which measures the confidence of financial market players in the future health of the German economy, was broadly stable in October, dipping to 56.0 from 57.7 in September.

This was well above the long-term average of 26.7 for the series but slightly worse than analysts surveyed by Dow Jones Newswires had forecast.

“The assessment of the financial market experts reflects the prevalent opinion. The economy will improve only gradually,” said the ZEW institute’s president Wolfgang Franz.

“The assessment of the current economic situation in Germany is still very poor and is only slowly improving,” the institute added.

A sub-index measuring the current state of the economy nosed higher but by only 1.8 points.

Despite the slight drop, the first since July, analysts were broadly upbeat.

Commerzbank economist Simon Junker said: “The trend is still upwards, though, and the positive news to be expected on the economy is likely to push up the ZEW index in the coming months.”

Indications have been growing recently that the German economy is over the worst of the economic crisis.

Business confidence surveys have been better than expected and so-called “hard” data, showing the current state of the economy, have also improved in recent months.

That has prompted Chancellor Angela Merkel to upgrade her view of likely output this year, forecasting a slump of four to five percent this year, rather than the six percent officially projected by the government.

The government will give new official forecasts for growth on Friday, an Economy Ministry spokeswoman told AFP. According to the Bild daily, Berlin will hike its forecast to minus 4.5 percent.

Carsten Brzeski, from ING, said: “The German economy is about to enter calmer waters. Still, it could still outperform most if not all of its fellow eurozone countries next year.”

“In a way, following the German economy in the period ahead could be like watching a match of the German national football team. Very often it does not look good. There is a lot to complain about but in the end the team scores,” he added.

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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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