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ECONOMY

Investor confidence tops 10-month high

German investor confidence hit a 10-month high in February amid optimism Europe's top economy will be able to escape from the eurozone crisis relatively unscathed, data showed on Tuesday.

Investor confidence tops 10-month high
Photo: DPA

The ZEW think tank’s economic expectations index rose by a whopping 27.0 points in February to stand at plus 5.4 points.

It is the third consecutive monthly increase in the closely watched indicator and brought the barometer back into positive territory for the first time since May 2011 and to its highest reading since April 2011.

The increase was also much bigger than expected: analysts had been pencilling in a much more modest rise of around 10 points.

“The further strong increase in economic expectations shows that analysts believe the current lull in growth in Germany is unlikely to intensify,” the ZEW said.

“Positive early indicators from the United States give rise to hope of a stabilisation in the global economy. And progress in the negotiations between Greece and its creditors will also have helped reduce uncertainty in the euro area,” it said.

“From analysts’ point of view, there is a good chance that the German economy will find itself on an upward trend in the second half of the year,” said ZEW president Wolfgang Franz.

“Domestic demand will remain the main pillar of growth because the favourable labour market situation means consumers need not fear for their jobs. It remains crucial that a solution be found to the eurozone debt crisis,” Franz insisted.

For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

The sub-index measuring current assessments rose by 11.9 points to 40.3 points.

The ZEW index is the only barometer of investor confidence in Germany and this month’s reading was based on responses from 284 analysts. A frequent criticism against it is that the index can be volatile and is therefore not a particularly reliable indicator.

Other business confidence indices, such as the purchasing managers’ index or the all-important Ifo survey, which is based on as many as 7,000 responses in the real economy, are seen as more accurate indicators.

Earlier in Berlin, the economy ministry said the Organisation for Economic Co-operation and Development (OECD) is predicting that German growth will slow to just 0.4 percent this year from 3.0 percent in 2011 as a result of weak foreign trade and the eurozone debt crisis.

The German government itself is pencilling in growth of 0.7 percent this year and has insisted there is no danger of the world’s second-largest exporter after China falling into recession.

AFP/mry

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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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