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ECONOMY

Germany to grow 1.5 percent in 2015: Brussels

Germany's economy is expected to continue growing in 2015, new forecasts from the European Commission (EC) showed on Thursday, although progress is set to remain sluggish.

Germany to grow 1.5 percent in 2015: Brussels
A worker testing robots in a Bavarian factory. Photo: DPA

"Germany's economic growth is expected to strengthen gradually", European Commission analysts write in their 2015 winter forecast, noting that the country benefits from a strong labour market, good conditions for domestic consumption and improving demand for its products abroad.

Economic recovery in Germany was slow in 2014, with growth of 0.1 percent in the final three months of the year following a fall in activity of 0.1 percent in the previous quarter.

But overall, the year added 1.5 percent to the size of Germany's Gross Domestic Product (GDP).

The first months of 2015 are expected to be brighter, as the effects of increased orders from German industry, lower oil prices and increasing confidence make themselves felt.

Commission experts believe Germany will grow a further 1.5 percent in 2015 before jumping to two percent next year.

And they are less concerned than some in Germany over the impact of the new national minimum wage, saying only that it "may have some negative employment effects" – and predicting employment growth of 0.9 percent this year.

That fit in with a generally improving picture across Europe, with Commissioner for Economic and Financial Affairs Pierre Moscovici saying that "Europe's economic outlook is a little brighter today than when we presented our last forecasts".

But the provisional nature of the recovery will be on Finance Minister Wolfgang Schäuble's mind on Thursday as he meets with his Greek counterpart Yanis Varoufakis of the left-wing populist Syriza party.

Schäuble has said he will aim to make as few concessions as possible to Varoufakis, who is trying to find a way out from under what he says is an impossible debt burden on his country.

Schäuble will be encouraged, though, by the Commission's evaluation of his sought-after "black zero" policy of getting public accounts into surplus.

"The general government balance is expected to show a small surplus in 2015 and 2016… the gross debt-to-GDP ratio is set to decrease rapidly," the economists write.

SEE ALSO: Germany hits export surplus record in 2014

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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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