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ECONOMY

Economy thunders ahead with record growth

Germany posted its best quarterly growth since reunification in 1990 on Friday, with one economist saying it was "in a league of its own" as other leading industrial nations showed signs of slowing down.

Economy thunders ahead with record growth
Photo: DPA

The German economy, Europe’s biggest, thundered ahead at a rate of 2.2 percent in the second quarter from the previous three-month period, and 4.1 percent from the second quarter of 2009, the national statistics office said.

“The recovery of the German economy, which lost momentum at the turn of 2009/2010, is really back on track,” the Destatis office said. “Such quarter-on-quarter growth has never been recorded before in reunified Germany.”

Elsewhere, major economies in North America and Asia are showing signs of slowing down while the 16-nation eurozone might see better than expected figures in the third quarter too.

ING senior economist Carsten Brzeski said Germany was “playing in a league of its own.”

Destatis also revised the first quarter growth figure higher to 0.5 percent from an initial estimation of 0.2 percent, the rate seen at the end of 2009. After suffering its worst post-war recession in 2009, “we are now experiencing XL growth,” Economy Minister Rainer Brüderle said.

Analysts polled by Dow Jones Newswires had forecast a second-quarter rise of 1.4 percent and an annualised gain of 2.6 percent.

The record figure is especially 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 global recovery.

But while Germany normally relies on exports to underpin growth – it is the second biggest exporter worldwide after China – “household and government final consumption expenditure contributed to GDP growth, too,” Destatis said.

“Structurally in a much better shape than many other industrialized countries, it was just a matter of time before the German economy would pick up further speed,” Brzeski said.

UniCredit counterpart Alexander Koch said Germany had “put the pedal to the metal” in the second quarter, and added that “the massive rebound in the spring GDP figures impressively confirms the revival of the German business model.”

Barclays Capital senior economist Julian Callow said the latest figures put Germany “on track to grow around three percent or even slightly more for this calendar year, significantly stronger than our prior estimate.”

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

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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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