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ECONOMY

Talent and growth head for the cities

The depressed rural areas of eastern Germany where economic growth is practically nil, should be taken as a stark warning for western regions of the country, an economic institute said on Wednesday.

Talent and growth head for the cities
Photo: DPA

Well-qualified people are moving to the cities such as Berlin, Dresden and Leipzig, enabling those areas to do well, while leaving rural areas empty.

“Aside from Berlin, Dresden and Leipzig, eastern Germany does not have much to offer,” the Cologne Institute for Economic Research (IW) said, presenting a study on economic growth across the country for the first six months of the year.

The absence of qualified workers makes the difference between the eastern rural areas — with an average growth rate of less than half a percent — and cities, which do much better.

And the trend is not just limited to the east, according to the institute. “Western German states without densely populated areas should look carefully at the problems in the east, because they could be in store for something similar,” the institute said.

Despite the ongoing debacle over the yet-to-open new international airport, Berlin had the highest economic growth rate in the country during the first half of the year.

“Berlin is losing its negative image with a lot of companies,” IW economist Klaus-Heiner Röhl told the Die Welt newspaper. Service providers were particularly attracted to the capital he said, even if their customers, often large corporations, were not based there.

“The most important plus for the firms is that many qualified workers want to come to Berlin,” Röhl told the paper.

The capital topped the list with 1.8 percent growth, followed by Baden-Württemberg and Lower Saxony, both registering 1.6 percent economic growth.

And although the non-Berlin eastern states had an average growth rate of less than 0.5 percent, western German states had average growth of 1.2 percent.

Eastern Germany suffers from qualified workers moving to urban areas, with a higher concentration of the population and more economic power.

The Local/mbw

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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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