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ECONOMY

German investors feel surge of Christmas cheer

Investors in Germany are increasingly feeling some Christmas cheer, with sentiment topping a seven-month high this month on hopes that Europe's top economy will dodge recession, data showed Tuesday.

German investors feel surge of Christmas cheer
Photo: DPA

The widely watched investor confidence index calculated by the ZEW economic

institute soared to 6.9 points in December from minus 15.7 points in November.

It was the highest reading since May and also the first time since then that the index has been in positive territory, the institute said.

“Financial market experts are looking to next year with a bit of pre-Christmas optimism,” said ZEW chief Wolfgang Franz.

“The economic slowdown we have seen over the past months will also stretch into 2013. But as things currently stand, Germany will be spared a recession,” Franz said.

“Nevertheless, a precondition for this is that the eurozone crisis does not intensify further,” Franz added.

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 financial market players’ view of the current economic situation in Germany edged up by 0.3 point to 5.7 points. A frequent criticism of the index that it can be volatile and is therefore not particularly reliable.

But the better-than-expected reading for December — analysts had been projecting a much more modest rise in the index to minus 11.3 points — fits in with other forward-looking data released recently.

In November, the key Ifo business confidence index halted a six-month slide to stage an unexpected rally.

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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