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EUROPEAN UNION

Public debt swells

The global financial crisis pushed Germany's public debt up 7.1 percent in 2009 to €1.7 trillion ($2.3 trillion), official data showed Thursday, the second sharpest rise since World War II.

Public debt swells
Photo: DPA

That hiked the national debt to just over 70 percent of gross domestic product (GDP), close to the European average.

Germany’s federal debt rose 6.9 percent to €1.1 trillion, due in large part to €36 billion linked to the government’s €500-billion rescue package to prop up the country’s stricken banks, the statistics office said.

Germany’s 16 states recorded an even bigger rise meanwhile, with their debt soaring 8.5 percent to €526.3 billion owing in large part to losses at public regional lenders that were hit hard by the crisis. Municipal debt gained 3.0 percent to €112.1 billion.

The data were preliminary and would be finalised later this year, the statistics office said.

The only time that Germany, Europe’s biggest economy, has posted a sharper rise was in 1995 as the government ploughed money into depressed former East Germany following German unification in 1990.

The 2009 level put Germany’s debt to GDP ratio at 70.3 percent according to a calculation based on published data, below a finance ministry forecast of 73 percent.

It breaches the 60 percent ceiling in the European Union’s Stability and Growth Pact however, while remaining below an estimated EU average of 73 percent published by the European Commission late last year. That rate climbed to 78 percent for the 16-nation eurozone.

Debt has become a major issue since it emerged that countries like Greece and Italy have allowed theirs to climb to more than 110 percent of national output, helping fuel a crisis over eurozone debt and deficits.

German debt could be higher still in 2010, with the government planning to borrow around €85 billion this year, the most ever, to finance stimulus measures and cover higher welfare costs.

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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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