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Economy in ‘party mood,’ survey finds

Germany’s business climate has shown the biggest monthly improvement since reunification, the respected Ifo economic institute reported Friday, in another sign that the crisis is but a distant memory.

Economy in 'party mood,' survey finds
Photo: DPA

“The German economy is in a party mood,” Ifo president Hans-Werner Sinn said in a statement.

The Munich-based institute reported that its monthly “business climate for industry and trade” figure rose sharply between June and July – from 101.8 points to 106.2 points.

“This increase is the largest since German reunification,” Sinn said.

The monthly survey of 7,000 firms in manufacturing, construction, wholesale and retail also showed healthy rises in firms’ expectations for the next six months.

The survey results came as daily Bild reported that just 10,000 workers at the country’s biggest firms are still on the Kurzarbeit scheme, under which their work hours are reduced to avoid layoffs.

Among the 30 major companies that make up the Dax share index, the vast majority are no longer using the system, which was a pillar of Germany’s response to the sharp economic downturn of 2008 and 2009.

At the high-point of the recession in May 2009, about 1.5 million workers at German firms were on the scheme.

The mechanism allows firms to put their workers on shorter hours during tough times, rather than lay them off. Taxpayers then make up part of the workers’ lost salary.

Car maker Daimler, for instance, said it had all but wound up its Kurzarbeit programme.

“Other than a few exceptions, we ended Kurzarbeit on June 30,” human resources director, Wilfried Porth, told the paper.

At the high point of the crisis – Germany’s worst downturn since World War II – some 41,000 workers at Daimler were on Kurzarbeit. A further 77,000 were on a smaller version of the scheme, taking an 8.75 percent cut in work hours and a corresponding cut in salary.

Indeed, the majority of workers still on Kurzarbeit are at one firm – truck-maker MAN, which has 8,000 employees on the scheme.

Deutsche Post has 124 Kurzarbeit workers, steel-maker ThyssenKrupp has 969 workers, while airline Lufthansa has 600 – all of them at its catering subsidiary LSG Sky Chefs. Engineering giant Siemens announced a week ago it would end its Kurzarbeit programme on July 31.

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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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