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ECONOMY

Latest economic index shows more gloom

The mood in the German economy dipped again in September, according to the latest index published by the Munich-based Institute for Economic Research (Ifo). But the figures are not as bad as feared.

Latest economic index shows more gloom
Photo: DPA

Ifo’s monthly index, based on a survey of 7,000 German companies, sank from 108.7 points to 107.5 points, the institute announced on Monday. That suggests business confidence is still falling, but some analysts had been expecting a two-point drop to 106.6 points.

The internationally-respected index has now dropped three months in a row, in the face of the ongoing debt-crisis in the eurozone and weakening growth. Economists usually see three consecutive negative results as a definite “trend” in economic development.

Ifo’s survey found that on average, 7,000 company managers in the construction, retail and industry sectors see their prospects for the next six months negatively, and also see the current situation as worse than before.

Ifo chief Hans-Werner Sinn said the “continuing favourable situation of companies shows that the German economy has so far managed to remain independent from political turbulence.”

But analysts were not so sure. “September’s modest decline in the German Ifo is a relief after larger falls in other survey indicators, but it remains clear that German economic activity is slowing very sharply,” said Jennifer McKeown, senior European economist at Capital Economics.

Carsten Brzeski, senior economist at ING Belgium, agreed. “Recent financial market turmoil and the never-ending eurozone sovereign debt crisis have befogged the outlook for the German economy,” he said. “The risks for the German economy have increased lately and today’s drop in the Ifo expectation component is a serious warning.”

Other economic indexes have delivered similarly poor figures recently. The latest index from the Centre for European Economic Research (ZEW) last week gave its lowest figures since December 2008. Many economists now fear that the world economy will shrink for the first time since 2009 in the fourth quarter of this year.

But the German Federal Bank and the Finance Ministry both maintain that Germany won’t fall into a recession. Most economic institutes are expecting a three-percent growth for the whole of 2011, but only one percent in 2012.

The Local/AFP/bk

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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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