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ECONOMY

Economy forecasters tip 2.5 percent growth

Germany’s fast-recovering economy could grow by 2.5 percent this year, the respected IWH forecasters predicted Tuesday, helping cement the widespread confidence that the rebound is here to stay.

Economy forecasters tip 2.5 percent growth
Photo: DPA

“The growth will, over the whole year, probably be in the range of 2.5 percent,” IWH forecaster Udo Ludwig told daily Berliner Zeitung.

The Institut für Wirtschaftsforschung Halle had previously assumed growth of about 2 percent. Other forecasters have also been revising their predictions upwards for the year – mainly on the back of booming exports – but the IWH tip is the rosiest yet from a major economic institute.

“I think one can be even more optimistic for this year, given the business rebound of the past months,” Ludwig said.

He said Germany’s surprisingly strong performance amid the lingering worldwide crisis could be largely explained by the fact that it had “profited from the strong sales to developing countries such as China, India, Brazil and also Russia.”

In mid-July, Economy Minister Rainer Brüderle also confirmed that growth would probably be stronger this year than previously thought. The government had predicted a 1.4 percent expansion this year, but Brüderle said he was certain it would be higher than that.

The government will release its second quarter growth figures on Friday. Trade figures released on Monday showed that exports rocketed 28.5 percent to €86.5 billion in June from the same month a year earlier, sparking excitement among economists.

“This has improved chances of the German economy having grown more rapidly in the second quarter than previously assumed,” Commerzbank analyst Simon Junker told news agency AFP.

ING senior economist Carsten Brzeski said: “The German economy is bound to see its strongest quarterly growth rate since reunification.”

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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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