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ECONOMY

Economy grows at slowest rate since 2009

UPDATE: German economic growth almost halved in 2013 held back by its weak European neighbours and a slowdown in the global economy, official data released on Tuesday morning showed.

Economy grows at slowest rate since 2009
Trucks lined up at Kiel docks. Photo: DPA

German GDP (gross domestic product) grew by 0.4 percent – down from 0.7 percent in 2012 and 3.3 percent in 2011, the Federal Statistics Office (Destatis) said in a statement.

It was the economy's worst performance since the depths of the recession in 2009.

But Economy Minister Sigmar Gabriel said that "even if annual average growth figure looks fairly subdued, it has to be seen positively."

"Germany was largely able to escape the recession that has hit a number of euro-area countries. The German economy is in good shape. All indicators suggest that consumers and companies are counting on a broad-based recovery," Gabriel said.

Destatis President Roderich Egeler said: "Clearly the German economy has been negatively affected by the ongoing recession in some European countries and sluggish global economic growth. Strong domestic demand could only partly compensate for this.

"Nevertheless, after the period of weakness last winter, the economic situation improved through the course of 2013."

Germany has come under heavy fire recently, from both its European neighbours and the United States, for its booming trade surplus, which critics argue has been built up at the expense of the country's crisis-ridden neighbours.

But the latest figures appear to contradict the critics. Domestic demand climbed by 0.9 percent, and it was a poor year for export growth – the cornerstone of Germany's economy – which posted an increase of 0.6 percent compared to 3.2 percent in 2012.

Experts had predicted GDP growth of 0.5 percent for 2013.

In the last three months of the year GDP rose by 0.25 percent.

"The eurozone crisis hurt export-orientated industries, particularly at the start of last year," said Ferdinand Fichtner of the DIW economic think-tank. "But since the spring, GDP has expanded at a moderate pace."

Commerzbank chief economist Jörg Krämer said the German economy "has sustained the solid gain seen in the third quarter."

And rising leading indicators, such as confidence surveys, "suggest that the expansion will probably continue at a similar pace in the first quarter" of this year, he said.

He forecast growth of 1.7 percent for the whole year 2014.

"The German economy is benefitting from the end of the recession in the euro area," he said.

Germany's public finances were also in the red last year, with a deficit equivalent to 0.1 percent of GDP compared with a slight surplus in 2012, the statisticians said in a statement.

READ MORE: UK economy to overtake Germany – in 2030

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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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