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ECONOMY

Germany has second-highest surplus in EU

Germany reported the second-largest government surpluses as a percentage of GDP in the EU last year and was one of only four countries to stay in the black, according to a report published on Tuesday.

Germany has second-highest surplus in EU
Photo: DPA

Only Denmark surpassed Germany, which reported a surplus for the third year in a row, amounting to more than €19 billion, or 0.7 percent of GDP in 2014.

Denmark had a surplus of 1.2 percent of GDP, or about 24 billion Danish kroner (roughly €3.2 billion).

Germany’s overall government debt amounted to €2.17 trillion, decreasing from 77.1 percent of GDP in 2013 to 74.7 percent of GDP last year.

A deficit is the amount a government spends more than its income within any given financial year, while debt is the total amount a government owes over time.

Throughout the eurozone, government deficit fell overall from 2.9 percent to 2.4 percent of GDP or about €246 billion, while EU member state deficits fell from 3.2 percent to 2.9 percent of GDP or about €402 billion in 2014.

Still, government debt in the euro area rose last year to 91.9 percent from 90.0 percent of GDP in 2013, while in the EU as a whole government debt was up to 86.8 percent of GDP from 85.5 percent the previous year. Euro zone debt amounted to about €9.3 trillion while EU debt totalled more than €12 trillion last year.

EU policies are forcing countries to reduce budget deficits, despite the fact that reducing spending could slow already very weak growth.

According to the EU Stability and Growth Pact, member states are supposed to aim for limits on deficits of 3 percent of GDP and debt of 60 percent of GDP.

 

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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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