Economists worry as stock markets plummet

Economists are warning of the possibility of a new global financial crisis after stock markets around the world, including in Germany, crashed on Thursday.

Economists worry as stock markets plummet
Photo: DPA

In the United States, the Dow Jones industrial average fell 513 points, or about 4 percent. And in Germany, the DAX plummeted about 200 points to 6414, 3.4 percent down on the previous day.

“The situation is worrying,” said Gustav Horn, the director of the Macroeconomic Policy Institute (IFK), who spoke of a market “panic” that could cause lending markets to crash.

He called on US and European authorities to intervene immediately and prop up failing markets.

Analysts think the massive stock exchange drops are being driven by new investor concern over wobbly Italian and Spanish banks and what that could mean for the world economy. Investors are concerned that the banks carry too much national debt and aren’t reporting their true state of affairs.

The biggest problems lie in investors’ scepticism of the creditworthiness of debt issued by European countries and concern that a major European bank could eventually default.

A European bank default could create a major credit crisis, on par with what happened in the United States in 2008 when a series of financial institutions began failing.

Some also believe European Union bailout efforts won’t be enough to save the continent’s most troubled economies, including Greece and Portugal.

Financial fears are also being manifested in other ways, for example through gold prices, which have risen to an all-time high.

DPA/DAPD/The Local/mdm

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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.


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.