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ECONOMY

Analysts expecting booming German growth

The German economy is showing massive improvement after the country's worst post-war recession last year, and with latest growth figures due on Friday, analysts are expecting rosy results.

Analysts expecting booming German growth
Photo: DPA

The strong figures they await will be even more notable as fears grow that the United States and now China, the Asian powerhouse, are showing distinct signs of slowing, raising questions about the overall recovery.

“The German economy is bound to see its strongest quarterly growth rate since reunification” in late 1990, ING senior economist Carsten Brzeski said.

As Europe’s biggest economy, and the number two exporter worldwide after China, Germany thundered ahead in the second quarter of 2010 and might surpass growth of 1.8 percent posted in the first three months of 1992.

Analysts polled by Dow Jones Newswires forecast on average a more modest quarterly rise of 1.4 percent and an annualised gain of 2.6 percent, solid numbers for western Europe.

“Even more important, however, whether growth is at 1.3 percent on the quarter or 2.0 percent is the fact that the growth momentum seems to be holding up well in the third quarter,” Goldman Sachs economist Dirk Schumacher noted.

Last week, European Central Bank president Jean-Claude Trichet said: “We consider that both the second quarter and probably the third quarter are likely to be better than we had anticipated” for the full 16-nation eurozone.

Schumacher highlighted German job prospects as “the most important bit of information in that respect as it clearly shows that companies believe that this is a genuine recovery.”

Though German unemployment inched up to 7.6 percent last month, Economy Minister Rainer Brüderle has forecast the number of jobless will soon drop to less than three million.

A state-subsidised programme that let firms cut workers’ hours during the downturn has kept unemployment from spiking, something that could support consumption in coming months.

While an export surge pushed the German trade surplus up to €14.1 billion in June, imports leapt to €72.4 billion, an all-time record since figures were first compiled in 1950.

In France, the second biggest eurozone economy, official data due Friday are expected to show a smaller rebound in activity but this might still be enough for Paris to reach its full-year target of 1.4 percent.

That is also Berlin’s official forecast, but it will probably be raised after a central bank estimate was revised higher to 1.9 percent in June.

German inflation could come in at a tame 1.2 percent this year, added Germany’s central bank, the Bundesbank, a level seen already in May and July.

The change of fortunes from 2009 is due in large part to the fact that Germany has become more competitive and its machine tools, autos and chemicals are highly valued worldwide.

German workers who made wage sacrifices to preserve their jobs as the economy contracted by 4.9 percent last year are letting it be known that payback is now in order, however.

Second-quarter growth will compare with a gain of 0.4 percent in the same period a year earlier, the first quarterly rise after a year-long recession.

In the first three months of 2010, German economic activity expanded 0.2 percent, the same rate as at the end of 2009.

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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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