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Stocks gyrate wildly as markets remain skittish

German stocks fluctuated wildly on Tuesday amid continuing fears that the world was headed toward another severe recession.

Stocks gyrate wildly as markets remain skittish
Photo: DPA

The DAX, a stock index of Germany’s 30 leading blue-chip companies, made gains in early trade but then plunged over 7 percent at one point.

By mid-day Tuesday, the DAX was was at about 5,660, still 4 percent below its previous close.

Continuing last week’s global slide, all main European stock markets were showing heavy losses, with London down more than four percent and Paris more than three percent.

The market instability in Asia and Europe follows Wall Street’s drop on Monday, where the Dow Jones Industrials index dropped 5 percent – its steepest drop since late 2008. Efforts by US President Barack Obama to calm markets following the United States’ credit rating cut from the top-notch AAA to AA+ failed to quell market jitters.

Experts expressed alarm as they said the European losses were being driven by near panic sales.

“The financial crisis has changed its nature and become even more vicious,” said Berenberg Bank chief economist Holger Schmieding.

Investors in European markets have become particularly worried about the debt loads of long suffering countries like Portugal, Greece and Spain

But on Tuesday the debt ratings of France and the United Kingdom were brought into question as well.

“The thinking is if the US (rating) can be downgraded, then the likes of the UK and France could be next in the firing line,” said ING debt strategist Padhriaic Garvey. “The threat to the French (top) AAA rating is the most worrying.”

All eyes remain firmly focused on the United States where financial regulators were set to meet Tuesday to discuss next steps.

DAPD/AFP/The Local/mdm

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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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