Bundesbank sees economy rebounding in 2010

The German central bank said on Friday that Europe's biggest economy will rebound next year after the country's worst slump since World War II.

Bundesbank sees economy rebounding in 2010
Photo: DPA

The Bundesbank released its latest forecast for 1.6-percent growth in gross domestic product (GDP) next year and 1.2 percent in 2011.

“The outlook for the German economy has gotten noticeably brighter in recent months,” the bank said, though it still expects a record post-war contraction of 4.9 percent this year.

After slumping sharply in the first three months of 2009, the economy pulled out of recession in the second quarter, thanks in large part to government stimulus measures.

The rebound will “continue in the next two years, though at a moderate pace,” the central bank said.

Analysts at Germany’s biggest private, Deutsche Bank, also forecast a contraction of 4.9 percent this year, but stronger growth of 2.1 percent and 1.4 percent respectively in 2010 and 2011.

A forecast of private-sector economists compiled by Dow Jones Newswires saw German growth of up to 2.0 percent in 2011, meanwhile.

The country’s export-orientated economy took a hit from the global economic slowdown but is now set to benefit from renewed demand for capital goods such

as machine tools and chemicals used to produce finished products.

The German government has also approved a fiscal stimulus package worth up to €21 billion in 2010, including €18 billion in tax relief for private households that should underpin consumer spending.

Unemployment in Germany has been limited meanwhile by the country’s short-time work scheme under which the state subsidises shorter hours for workers to avoid widespread lay-offs. Various measures contained in the plan are due to run until mid 2012 at the latest.

The number of jobless is nonetheless expected to reach more than 3.8 million people next year, and 4.2 million in 2011. In November, it stood at 3.2 million, or 7.6 percent of the workforce.

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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.


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.