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FINANCE

Dubai crisis set to hit German industry

German businesses are likely to be hit hard by Dubai’s debt crisis through a slump in orders for exports, the head of Germany's chamber of commerce told daily Neuen Osnabrücker Zeitung on Saturday.

Dubai crisis set to hit German industry
Photo: DPA

“We will see it clearly in orders,” Martin Wansleben, the German Association of Chambers of Commerce and Industry (DIHK) boss, told the paper. “Many businesses will be hit.”

The “permanent building site” of Dubai, the Arab emirate where debt-fuelled construction has gone at breakneck pace for more than a decade, had been an important market for any company that provided good and services to do with building, “from drill machines and excavators through to fittings and windows,” he said.

Furthermore, the psychological effect of the debt crisis in the Persian Gulf was “not to be sneezed at,” Wansleben warned.

“In the current unstable climate, every setback is dangerous. In this context, Dubai is an absolute bombshell.”

The news earlier this week that Dubai, a regional business hub in the Middle East, could not meet interest payments on its US$60 billion debt, sent share markets plunging around the world as investors panicked.

The German economy also faced other risks, Wansleben said.“With the greatest optimism, we still have to count on some setback or another hitting us.”

That included a further credit crisis stalling the rebound in Germany, Wansleben said. The progress of the American dollar also needed careful watching.

While economists say Germany’s economy and business confidence are recovering, it is still expected that unemployment will continue to rise amid the fragile international economic climate.

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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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