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Industry orders post sharp decline

Industrial orders in Germany dropped sharply in July after a strong rise the month before, official data showed Tuesday, dealing a setback to the economic recovery of Europe's powerhouse.

Industry orders post sharp decline
Photo: DPA

Orders fell by 2.2 percent on the month, figures from the Economy Ministry showed, following an upwardly revised gain of 3.6 percent in June.

The data wrong-footed analysts surveyed by Dow Jones Newswires, who had forecast a gain of 0.4 percent. “Orders growth continued to weaken after the extraordinarily strong orders dynamic early in the year,” the ministry said in a statement.

“The result for the current month was depressed by significantly below-average large orders,” added the ministry.

The drop was caused by a marked 3.7-percent dip in foreign demand. Domestic orders fell a more modest 0.3 percent. Nevertheless, taking the months of June and July together, which gives a better idea of the trend, industrial orders in Germany rose by 2.4 percent. The monthly drop was the biggest since February 2009, said Carsten Brzeski, economist at ING bank in Brussels.

“However, the drop is no reason to worry. Instead, we would characterise it as the expected correction after several strong months,” said the analyst in a research note.

Heinrich Bayer, from Germany’s Postbank agreed, saying: “All in all, despite the sharp decline compared to the previous month, the data do not suggest that the upturn in German industry will break down in the short term.”

For his part, Alexander Koch from Unicredit termed the result an “expected technical correction.”

Germany, the world’s second-biggest exporter, has bounced back from a crippling recession in 2009 to register record growth in the second three months of the year, driven by increased demand for its goods around the world.

Berlin is expected to raise its forecast for output growth this year to around 3.0 percent, up from a previous estimate of 1.4 percent, according to media reports.

However, concerns of a double-dip recession in the United States, along with Chancellor Angela Merkel’s €80 billion ($102 billion) austerity package passed last week, have raised fears of a slowdown in the second half of 2010.

Postbank’s Bayer said: “Towards the end of the year, the upswing in industry could mark a pause.”

Despite the recession, unemployment in the country remained relatively low at 7.6 percent of the workforce in August, with some 3.2 million people out of work.

Industry leaders are increasingly optimistic about the future as well, with business confidence levels rising to where they were before the financial market crisis.

AFP/rm ([email protected])

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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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