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ECONOMY

‘Jubilant’ German businesses are brimming with confidence like never before

German business confidence soared to a "jubilant" new high in June, having already reached a quarter-century peak the previous month, a survey said Monday.

'Jubilant' German businesses are brimming with confidence like never before
A Porsche worker assembles part of a 911 Carrera Cabriolet. Photo: DPA

The closely-watched Ifo business confidence index set a new record of 115.1 points, defying expectations of analysts of a slight decline after it reached 114.6 in May, the highest since 1991.

The Munich-based Ifo Institute for Economic Research calculates the score from a survey of 7,000 companies, who are asked to give their assessments of the current business situation and their expectations for the next six months.

READ ALSO: These are the German regions where the economy is really booming

Analysts surveyed by financial services provider Factset had expected 114.4 points in June.

The strong optimism comes despite challenges for Europe's top exporters, from US President Donald Trump's “America First” stance on trade to Britain's looming exit from the European Union.

“Sentiment among German businesses is jubilant,” said Ifo president Clemens Fuest in a statement.

“Companies were significantly more satisfied with their current business situation this month. They also expect business to improve.”

The German economy expanded by 0.6 percent in the first quarter, and the government expects growth to hit 1.5 percent for the full year, while several economists have predicted it would reach or top last year's level of 1.8 percent.

Fuest said that “Germany's economy is performing very strongly. In manufacturing, the index rose slightly. Assessments of the current business situation remained unchanged at a very high level.”

The optimism was shared by manufacturers — who planned to ramp up production — wholesalers and retailers, Ifo said, pointing to a lower index only in construction where the assessments of current and future business nevertheless remained at a high level.

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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