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ECONOMY

Middle class shrinking

Germany’s middle class has been steadily shrinking since the late 1990s, a leading economics think tank has found.

Middle class shrinking
Photo: DPA

The German Institute for Economic Research (DIW) has calculated that, despite falling unemployment, the proportion of individuals and families living on roughly average incomes has dropped, weekly Die Zeit reported in advance of its Thursday edition.

The share of middle income earners as a proportion of the population fell from 59.2 percent to 58.7 percent over the course of 2008 – the last year for which reliable figures are available. Ten years earlier, the figure had stood at 64 percent.

“The trend is clear,” said DIW researcher Markus Grabka. “Since 1999, the middle class has shrunk continuously.”

The DIW defines “middle class” as people who have at their disposal between 70 percent and 150 percent of the average after-tax income. For a single person, that means between €1070 and €2350 per month.

Grabka’s calculations contradict recent research by the Roman Herzog Institute, a Munich think tank named after the former German president and committed to economic reform. The RHI has declared the shrinking middle class to be a “myth.”

Grabka argued his calculations were more comprehensive: he studied annual income rather than monthly income and therefore incorporated investment income as well as periods of temporary unemployment.

His findings correspond to figures released Tuesday by the Federal Statistics Office (Destatis) which revealed that the proportion of Germans at risk of poverty had risen from 12 percent in 2004 to 15.5 percent in 2008. Still, Germany’s poverty risk rate is lower than the European Union average, which is 16.3 percent.

The EU defines a person as being at risk of poverty if they are forced to live on less than 60 percent of the average income, including state transfers such as welfare payments. In Germany, this amounted in 2008 to €11,151 per year for a single person. Some 62 percent of unemployed people and 37.5 percent of singles are regarded as at risk of poverty, along with 14.9 percent of pensioners.

The highest risk of poverty in the EU is in the Baltic state of Latvia with 25.7 percent. Its neighbours also have high rates – Lithuania with 20.6 percent and Estonia with 19.7 percent. Romania has a rate of 22.4 percent and Bulgaria 21.8 percent. Countries hit by the eurozone crisis are also at high risk, with Greece on 19.7 percent and Spain – which some experts predict may also need a bailout – on 19.5 percent.

The lowest rate is in the Czech Republic, where just 8.6 percent of the population is at risk of poverty.

The Local/djw

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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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