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ECONOMY

German growth still solid and expanding

Germany’s economic rebound is broadening, Economy Minister Rainer Brüderle said on Tuesday, as he announced that growth had slowed but was still solid.

German growth still solid and expanding
Photo: DPA

The Federal Statistics Office confirmed previous expectations that the gross domestic product grew 0.7 percent in the third quarter, adjusted for price, season and calendar, which equates to 3.9 percent year-on-year growth.

But importantly, the growth is now on a broader base, being fuelled to a greater extent by domestic consumption – a fact that should dampen criticism from abroad about Germany’s reliance on exports.

“A golden boom-autumn is following the great rebound summer,” Brüderle said in Berlin.

While the rebound had been triggered by strong export growth, the domestic economy was now growing ever stronger, he said.

“There is investment again, activity is picking up dynamically, incomes are rising and private consumption is increasingly supporting growth in Germany.”

Private and public consumption, gross investments and exports contributed to the GDP growth, the statistics office said. Private and public consumption grew by 0.4 percent and 1.1 percent, respectively, compared with the previous quarter, while gross investments grew by 1.3 percent. Exports accounted for 0.3 percentage point of gross domestic product growth.

Germany has been the target of tough criticism from neighbours such as France, and other countries including the United States, for its dependence on exports, producing a massive trade surplus. Other countries say this harms their own growth because Germans are not buying enough products from abroad.

But economists have said for some time now that the rebound was broadening in Germany to include stronger domestic consumption.

While the overall rate has slowed compared with the stellar 2.3 percent rise between April and the end of June, the 0.7 percent figure still represents solid growth.

DAPD/The Local/dw

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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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