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ECONOMY

Growth slumps in 2012 as Q4 economy shrinks

The German economy, Europe's biggest, shrank in the fourth quarter of last year, leaving full-year growth at just 0.7 percent, official data showed on Tuesday. Berlin is reportedly expecting even less growth in 2013.

Growth slumps in 2012 as Q4 economy shrinks
Photo: DPA

The federal statistics office Destatis estimated that gross domestic product (GDP) contracted 0.5 percent in the last three months of 2012, after expanding by 0.5 percent in the first quarter, 0.3 percent in the second quarter and 0.2 percent in the third quarter.

Destatis is not scheduled to publish more precise fourth-quarter GDP data until next month.

But at the authority’s annual news conference to present its estimates for full-year growth figures, Destatis’ top statistician Norbert Räth gave a rough indication with respect to the fourth quarter.

“The full-year growth figure (of 0.7 percent) implies a contraction of around half a percentage point in the fourth quarter,” Räth said.

Despite the sharp slowdown in growth in the second half of last year, Destatis president Roderich Egeler pointed out that Germany was still faring much better than most of its European neighbours, many of which were in recession.

“Overall, the German economy proved itself to be very robust,” Egeler said. “Despite the European economic crisis, GDP expanded by 0.7 percent, driven particularly by robust foreign trade as well as domestic consumption,” Egeler said.

For the first time for five years, the overall state budget — which covers both the German government, the regional and municipal authorities, as well as the social welfare administration — showed a surplus of €2.2 billion ($2.9 billion), equivalent to 0.1 percent of GDP, Egeler added. In 2011, the overall state budget had shown a deficit ratio of 0.8 percent.

But the German government is reportedly expecting growth of only 0.5 percent this year, as the ongoing eurozone crisis drags on Europe’s largest economy.

The business daily Handelsblatt reported on Tuesday that Berlin will slash its previous growth forecast in half in its annual economic report due out later this week.

However, government officials see light at the end of the tunnel, penciling in gross domestic product growth of 1.25 percent in the final quarter of 2013. And the German labour market is expected to remain largely unscathed by the economic slowdown this year.

The prognosis assumes Europe’s sovereign debt crisis will continue to fester but not worsen dramatically, which would unsettle financial markets.

“The ongoing debt crisis in some eurozone countries still remains the biggest risk,” the paper quoted the report as saying.

The Local/AFP/DAPD/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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