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EUROPE

Chance of more QE peps Dax, troubles economists

The European Central Bank (ECB) announced Thursday that it may continue buying eurozone governments' bonds into 2016, hoping to free up banks' cash to invest in business. The German stock market reacted excitedly – but economists aren't convinced.

Chance of more QE peps Dax, troubles economists
The Euro symbol seen through ECB President Mario Draghi's glasses. Photo: DPA

Shortly after ECB President Mario Draghi announced on Thursday that “the council of the ECB is ready and willing to take action, and will use all its tools,” the Dax index of Germany's biggest companies jumped 1.55 percent to 10,396.66 points.

Investors had been keenly watching the ECB decision, with some worrying that the bank wouldn't continue policies aimed at keeping the European economy more liquid.

But some German economic observers warned that the ECB could never by itself ensure economic growth.

“It will never be enough for the markets. For the real economy, continuing the present bond-buying programme will have little effect,” said Carsten Brezski, chief economist at ING Diba.

“This looks much more like a desperate measure.”

And Professor Stefan Kooths of the Kiel Institute for the Global Economy (IW) warned in a statement that the ECB keeping interest rates low presented its own dangers.

“The risks of zero-interest policies are becoming greater with every month. Low returns are driving investors to more and more risky bets, there is a threat of systematic bad investments,” Kooths said.

“The policy of ultra-cheap money is contributing little to overcoming the Euro crisis, which continues to smoulder – the problem is being put off, not resolved.”

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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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