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ECONOMY

Economic clouds gather despite strong GDP

Germany, Europe's biggest economy, is still growing but the outlook is becoming increasingly clouded by "substantial risks" from the debt crisis, the economy ministry warned Friday.

Economic clouds gather despite strong GDP
Photo: DPA

“In a difficult European environment, the German economy is continuing to show itself to be fairly robust,” the ministry said in its latest monthly report.

Gross domestic product (GDP) “is expected to have expanded moderately again in the second quarter, as suggested by the available indicators for private consumption and external trade,” it said.

“Nevertheless, following the strong growth seen in the first quarter, the momentum will have slowed noticeably given the weaker international trend. The debt crisis in a number of euro area countries is continuing to weigh, fuelling uncertainty,” the report continued.

“The further outlook for the German economy will remain cautious for the time being and is burdened by substantial risks.”

While many of Germany’s eurozone partners are in recession, the bloc’s economic powerhouse notched up growth of 0.5 percent in the first three months of this year.

But with much of Europe in the doldrums, German exports, too, are beginning to falter and some analysts believe the economy as a whole could have ground to a halt in the second quarter.

Official second-quarter GDP figures are scheduled to be published next week.

A raft of recent economic data suggests that Germany’s growth momentum is

indeed fading.

Exports, which grew 4.1 percent in May, fell 1.5 percent in June, hit by falling shipments to the other 16 countries of the eurozone, according to the latest data compiled by the national statistics office Destatis.

Imports – a barometer of domestic demand – were down, too, falling by 2.9 percent.

The slump in demand is hitting industry and the manufacturing sector, the backbone of the German economy, separate data published by the economy ministry showed.

Factory orders fell by a bigger-than-expected 1.7 percent in June, more than wiping out the modest increase seen the previous month, while industrial output declined 0.9 percent.

New car registrations – a key gauge of demand in one of the most important industrial sectors – fell sharply last month, retail sales are also in decline and unemployment is on the rise again, which could hurt consumer spending.

Last month, business confidence dropped for the third month in a row and investor confidence hit a six-month low.

The Local/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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