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ECONOMY

Business confidence posts surprise rise

Germany's Ifo business confidence index posted a surprise rise on Friday, suggesting investors remain positive about prospects for Europe's top economy despite the Greek debt crisis and concerns about US growth.

Business confidence posts surprise rise
Photo: DPA

The monthly Ifo business climate rose in June, its first increase since February, to 114.5 points from 114.2 points in May, beating expectations of 113.5 points, according to a poll of economists by Dow Jones Newswires.

“The German economy is experiencing a robust upswing. The business climate in manufacturing continues to be good,” Ifo President Hans-Werner Sinn said.

The closely-watched index is based on a survey of around 7,000 firms in manufacturing, construction, wholesaling and retail.

The Financial Times Deutschland suggested that the German economy might be immune to the risks of the debt crisis, with the Ifo index this month reaching the highest level since reunification back in 1990.

Yet managers may not be as optimistic as it seems, the FTD said. The mood among industrial and wholesale sectors is high, but values for retail are less rosy, with traders sceptical about the immediate future.

Earlier this week, the Centre for European Economic Research (ZEW) survey of economic sentiment fell sharply on worries about the eurozone debt crisis and growth prospects for the US.

Ben May, economist at Capital Economics, said the Ifo “defies” other evidence that the German economy’s impressive recent expansion is slowing.

“Nonetheless, we still think that (gross domestic product) growth will weaken over the remainder of the year,” May said in a research note.

“All in all this is a positive surprise. We had expected a downturn of the index,” said Marco Bagel from the Postbank told the FTD. “One can assume then that the second quarter will turn out to have been better than one had expected.”

“We will get a normalisation. We are well away from stagnation,” said Dirk Schumacher, economist at Goldman Sachs.

But most prognoses suggest a weakening of growth in the second half of the year.

AFP/The Local/hc

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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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