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ECONOMY

Mid-sized firms plan to invest – with own cash

Some 85 percent of medium-sized German companies are planning to invest this year, but relatively few will run to the bank to borrow money, a study released on Thursday by the Deutsche Bank showed.

Mid-sized firms plan to invest - with own cash
Photo: DPA

The survey of 200 financial decision-makers in companies with sales of more than €25 million was conducted by TNS Infratest in April and May and obtained by the Handelsblatt newspaper.

The size of the planned investments is astounding, the paper wrote. Some 41 percent plan to put in between €500,000 and €2.5 million, while 16 percent plan to spend between €2.5 million and €5 million, with nearly an equal percentage planning to invest less than €500,000.

And perhaps equally noteworthy is how the company’s plan to finance their investment.

Nearly 75 percent expect to use money they already have, with only a quarter going to the bank for new credit.

For those following the heated discussion about the euro this should come as no surprise. Chancellor Angela Merkel has been urging her European colleagues to get their financial houses in order and not spend more than they produce. This survey would suggest that Germany’s medium-sized companies operate in much the same way as its chancellor.

The companies surveyed said their planned investment spree was aided by low interest rates, a positive investment climate and the need to make up for reduced investment some years ago when things were even tougher economically. Also some 62 percent said government subsidies for energy efficiency projects were behind their decision.

But despite the positive climate another survey published on Thursday showed a slight increase in the number of firms going bankrupt. Some 32,000 firms are expected to go under during 2012 – an increase of about 2,000 over last year.

And due to the bankruptcy of Schlecker, once Germany’s largest drugstore chain and the ongoing difficulties in the solar industry, the financial damage from bankruptcy rose by 55 percent in the first half of this year to reach €16.2 billion, with the number of endangered jobs up 40,000 to 150,000.

Those workers are unlikely to be helped by the increase in medium-sized firms’ investment, as most firms said they were not planning to increase the number of jobs. Some 27 percent are and two-thirds said their investments were being made to maintain the employment they had.

Some two-thirds planned to buy new machines or invest in their infrastructure and more than a fourth said they wanted to invest in real estate. A tenth said they were planning to buy another business.

DAPD/The Local/mw

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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.

READ ALSO:

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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