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ECONOMY

Economic recovery picking up speed

The German economic recovery has accelerated in recent months, the central bank said Wednesday, fuelling expectation it could raise its growth forecast for Europe's biggest economy.

Economic recovery picking up speed
Photo: DPA

Following a sharp slowdown during a particularly difficult winter, the economy will pick up again at a much more sustained rhythm, the Bundesbank said in its monthly report for May.

German industrial production in particular “will markedly accelerate the movement” and exports will once again play a leading role, the bank said. Companies will benefit from their presence in non-European countries that currently post strong growth rates, especially China.

“In addition, German exporters are benefiting from recent changes at the level of international exchange rates,” the Bundesbank said, a reference to the euro’s fall in value against other major currencies.

In the construction sector, the central bank forecast a rapid pickup in activity owing to a high level of orders.

With respect to consumption, the bank was more cautious, noting it would be less affected by fallout from the expiration of the government’s car scrapping premium in late 2009.

The latest measure of consumer confidence by the GfK research institute, which was also released on Wednesday, did not augur well meanwhile. German households are worried about their savings owing to the eurozone financial crisis and the euro’s decline, GfK said.

Resistance shown by the labour market and a better than expected quarterly increase of 0.2 percent in gross domestic product in the first quarter have not encouraged shoppers to increase spending.

Nevertheless the central bank’s overall positive outlook suggested it could raise forecasts for economic growth, which are to be revised in June.

The Bundesbank currently expects growth of around 1.6 percent this year and 1.2 percent in 2011.

The Organisation for Economic Cooperation and Development said on Wednesday that the recovery in Germany was fundamentally robust and would pick up from the second quarter as exports benefited from a rebound in world trade.

The OECD forecast output for 2010 would be 1.9 percent, from a contraction of 4.9 percent last year, and then rising to 2.1 percent in 2011.

“Notwithstanding the temporary weakness, the underlying growth momentum is intact and suggests solid growth going forward,” the OECD said.

Several economists have already forecast German growth of two percent or more this year.

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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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