Economy seen heading for slowdown

The government said on Tuesday that Germany's economy will likely slow later this year due to the impact of the eurozone debt drama, in a stark warning that the crisis is hitting even Europe's strongest economy.

Economy seen heading for slowdown

“The German economy started the third quarter well, despite the difficult international environment. However, the economic risks have risen significantly in recent weeks and the mood of investors and consumers has darkened,” the Economy Ministry said in its latest monthly report.

“Growth will be slower in the rest of the year due to weaker external impulses and more cautious domestic demand from businesses and private consumers.”

Germany, Europe’s powerhouse economy and the world’s second biggest exporter after China, have weathered the crisis relatively well so far, with low unemployment and dynamic growth.

However, clouds have gathered over the country and output slowed to 0.1-percent in the second quarter, as business and consumer confidence has slumped. With the world looking to Germany to lead Europe out of the crisis, Chancellor Angela Merkel has vowed to present a plan, along with France, to save the euro by the end of the month.

“For the future development of the economy, it will be crucial to win back the confidence of the financial markets in the growth potential and stability of the eurozone member states,” the ministry report concluded.

The German government has forecast growth of 2.6-percent for this year. The economy ministry will update its outlook on the country’s financial situation on Thursday.


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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.