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ANGELA MERKEL

Merkel still optimistic about 2011 growth

The German government could raise its official growth forecast after Chancellor Angela Merkel indicated on Friday Europe's biggest economy would expand faster than expected this year.

Merkel still optimistic about 2011 growth
Photo: DPA

“Growth this year should be closer to three percent than 2.5 percent,” she told a trade association in Berlin, despite mounting concern that Germany, which is heavily dependent on exports, could be facing a slowdown.

Merkel’s comments suggest that the government – which has so far been pencilling in gross domestic product (GDP) growth of 2.6 percent – may raise its official 2011 forecast when it is announced at the end of October.

Indeed, economists and business leaders have all been much more optimistic all summer, suggesting growth could actually come out at 3.0 percent or even higher.

But to ensure continued growth, the stabilization of the euro will remain “the central task” for the government, Merkel said.

“The euro provides for more economic growth, it creates jobs and with it also secures prosperity in Germany,” she said. “We need to move closer together and (create) more shared responsibility among euro member states.”

But the ongoing eurozone debt crisis could pour cold water on the German government’s optimism, with the European Central Bank and the EU Commission both downgrading their economic forecasts for the single currency area recently.

And German growth, too, failed to meet expectations in the second quarter, coming out at a meagre 0.1 percent.

One leading economic think tank, the IfW in Kiel, even suggested Germany was “on the edge of a recession,” predicting growth would slow from an anticipated 2.8 percent this year to just 0.8 percent next year.

AFP/DAPD/DPA/The Local/emh

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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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