Eurozone crisis to hit 2012 growth hard

The eurozone crisis will hit Germany hard next year with growth expected to be dramatically lower than previously thought, the government said on Thursday.

Eurozone crisis to hit 2012 growth hard
Photo: DPA

Berlin said it expected growth of 1.0 percent next year, almost half the 1.8 percent forecast in April, as the economic woes in the eurozone undercut activity in Germany’s main trading partners.

“The rate of growth has, as expected, slowed somewhat,” Economy Minister Philipp Rösler said.

“The reason for this slightly slower growth path is the risk from the international environment, which has increased significantly. With the higher uncertainty due to the debt crisis in several countries, global growth rates have cooled markedly,” he added.

While output growth this year is still seen relatively buoyant, at 2.9 percent, thanks to a very strong first quarter, the economy is poised to slow very sharply towards the end of this year and at the start of 2012.

Germany’s leading economic institutes last week forecast that growth would slow to almost zero in the fourth quarter of 2011 and the first quarter of 2012, with the economy only narrowly escaping a technical recession, which is defined as two consecutive quarters of contraction.

The German economy suffered badly during the 2008 debt crisis, registering its worst recession in six decades, before rebounding strongly with 3.7-percent growth in 2010. But a spirit of optimism on the German economy has dissipated rapidly as the crisis refuses to go away and leading indicators are pointing to a bumpy road ahead.

Investor sentiment hit a three-year low, according to the ZEW institute this week and business confidence is at its lowest level since June 2010.

Industry appears to be slowing and retail sales have also hit the skids, suggesting the economy will not get significant impulses from domestic demand. For the moment, exports are holding up but analysts warn that this crucial motor for the German economy will also begin to splutter soon as a global slowdown hits demand for goods made in Germany.

Rösler however sought to put a gloss on the figures, saying: “The German economy is doing well … it remains on a growth path. For Europe, we are still an anchor of stability and a growth motor,” he said.


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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.