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ECONOMY

Moody’s raises Germany outlook to stable

Moody's raised its outlook for the German bond rating to "stable" from "negative" on Friday, citing the lowered risk that Berlin would be called on to prop up weak eurozone economies.

Country-by-country progress in the eurozone, and progress in building the European Union's institutional barriers to crisis contagion, meant there was less danger that Germany would have to lead further bailouts of other eurozone countries, Moody's said.

In addition, it cited the narrowing of Germany's fiscal deficit as  also contributing to the strengthening of its top-flight AAA rating.

"Moody's expects balanced fiscal budgets for 2014 and 2015… the authorities are unlikely to deviate from the prudent fiscal policy stance announced in the coalition agreement," it said.

The rating firm pointed to an improving debt-to-GDP ratio, down to 79 percent from 81 percent in 2012, and the country's low funding costs as strong positives as well.

Another reason for the improved outlook for Europe's largest economy was that risks that the government would have to do more to support its banks had diminished.

"This change reflects German banks' stronger ability to withstand shocks because of a year of reduced crisis-related losses and improved capital strength," it said.

Moody's said the triple-A rating was rooted in Germany's advanced, diverse economy "and a history of stability-oriented macroeconomic policies."

But it said that if the euro area debt crisis worsened, and especially if it affected larger economies like Italy or Spain, that could threaten the rating.

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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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