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Harsh winter hits growth

Germany’s booming economy slowed in the fourth quarter of last year amid exceptionally harsh winter weather, expanding just 0.4 percent according to figures published by the national statistics office on Tuesday.

Harsh winter hits growth
Photo: DPA

Activity in the three months to December was shy of analyst forecasts for 0.5 percent as compiled by Dow Jones Newswires.

Cold weather and snow in December curtailed construction activity and economists said it would probably bounce back like it did last year.

“The construction sector should rebound forcefully in January,” Goldman Sachs economist Dirk Schumacher said.

For all of 2010, the Destatis office confirmed the economic expansion of 3.6 percent initially estimated in January, marking the strongest growth since German reunification in 1990.

In the last three months of the year, activity expanded by a price-adjusted 4.0 percent from the same period in 2009, it added, slightly less than analyst forecasts for 4.1 percent.

“The upswing of the German economy continued at the end of 2010, though at a slightly slower pace,” Destatis said in a statement.

The economy grew 2.2 percent in the second quarter, slowing to 0.7 percent in the third.

“We think that the absolute boom in German industry is behind us,” UniCredit economist Andreas Rees said.

Once again in the fourth quarter, “a positive contribution was made mainly by net exports,” Destatis said.

“Also, on a domestic scale, both capital formation in machinery and equipment and consumption were up, so that especially the weather-related decrease in capital formation in construction could be offset.”

Detailed results are to be released on February 24.

German Economy Minister Rainer Brüderle said in a statement that “these results show that the upward trend of the German economy is continuing,” and the government still expects growth of 2.3 percent this year.

Brüderle said Germany remained an economic locomotive but some eurozone partners complain that its exports come at their expense.

The value of German exports soared 18.5 percent last year, Destatis figures show, though imports grew by an even faster 20 percent.

ING senior economist Carsten Brzeski said the growth data “showed that the economy has lost somewhat more steam than expected.

“The economic high-flyer of the summer has been brought back down to earth,” he noted. “However, it is not a crash-landing but only a snow-driven stop-over.”

AFP/The Local/mry

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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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