Long winter shrivelled German economy, central bank says

The German economy, Europe's biggest, shrank slightly in the first three months of the year due mainly to a viciously cold winter, the country's central bank, the Bundesbank, forecast on Monday.

Long winter shrivelled German economy, central bank says
Photo: DPA

“Because construction activity was affected by winter weather even in March, we expect a slight decline in gross domestic product (GDP) in the first quarter,” the Bundesbank said in its regular monthly report.

Disappointing new car sales suggest a dip in private consumption, further dragging economic activity down, the bank added.

Throughout most of the early part of the year, Germany was covered in a thick blanket of snow and ice, depressing construction activity and keeping consumers out of the shops.

Nevertheless, the Bundesbank said it expected the upwards trend of the German economy to continue in the second quarter.

The fourth quarter of 2009 had already marked a slowdown in the economy, with gross domestic product (GDP) stagnating after growth of 0.7 percent in the third quarter and 0.4 percent in the second.

The Federal Statistics Office is due to publish a first estimate of first quarter GDP on May 12.

The economy is still recovering from its worst recession in more than 60 years, with GDP shrinking by five percent in 2009.

Berlin expects overall GDP growth of 1.4 percent this year.

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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.