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ECONOMY

Investor sentiment hits three-year high

Investor sentiment in Germany inched higher in March to the highest level for more than three years, with analysts convinced that the outlook for Europe's top economy remains bright, a new survey found on Tuesday.

Investor sentiment hits three-year high
Photo: DPA

The widely watched investor confidence index calculated by the ZEW economic institute edged up to 48.5 points in March from 48.2 points in February. That is its highest level since April 2010.

“After three substantial increases between December 2012 and February 2013, the indicator has stabilised in March at a respectable level,” said ZEW president Clemens Fuest.

“The political situation in Italy and the rescue package for Cyprus have increased the risk that the eurozone debt crisis will worsen again. This may have contributed to the fact that the indicator has not increased substantially this month,” he said.

Nevertheless, the analysts quizzed by ZEW were sticking to their forecasts, Fuest continued.

“The economic situation in Germany is likely to improve over the next months. As before, the eurozone debt crisis remains the biggest risk. This fact has been brought back to our attention over the last weeks,” he said.

For the survey, ZEW questioned 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 jumped by 8.4 points to 13.6 points in March, its highest level since August 2012.

A frequent criticism against the ZEW index is that it can be volatile and is therefore not particularly reliable.

AFP/mb

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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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