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ECONOMY

Worst of crisis now behind us, says Germany’s chief banker

Germany has turned the corner on the worst of an economic crisis sparked by the coronavirus pandemic and is now on the path to recovery, the central bank chief of Europe's biggest economy said Sunday.

Worst of crisis now behind us, says Germany's chief banker
Jens Weidmann. Photo: DPA

“We experienced in the last months the deepest economic slump in Germany's (post-war) history,” Jens Weidmann told Sunday's edition of the daily Frankfurter Allgemeine Zeitung.

“The good news is: the trough should be behind us by now, and things are looking up again. But the deep slump is being followed only by a comparatively gradual recovery.”

Weidmann, who has never minced his words against expansionary policies ramped through in the past by the European Central Bank, on Sunday also voiced support for the unprecedented economic rescue and stimulus packages unleashed by Berlin to shield German companies and jobs.

Chancellor Angela Merkel's government had stunned observers in March when it unveiled a rescue package worth 1.1 trillion euros, smashing through a long-held no new debt dogma to fund the measures.

Earlier this month, it said it would plough another 130 billion euros into various schemes, including a cut in VAT, to stimulate the economy.

 

Reacting to comments that Germany, once known as a “frugal” nation, was now dramatically loosening its purse strings, Weidmann said: “The image of the Swabish housewife is often wrongly portrayed.

“She is not saving for the sake of saving, but so that there is money that can be spent sensibly and in case there are difficult times. And that is precisely the case here.”

Like nations across Europe, Germany shut schools, shops and sent workers home from mid-March to halt transmission of the coronavirus.

The impact of the health crisis has pushed the economy into a deep recession believed to be the worst since World War II.

After the rate of new infections dropped sharply, Europe's biggest economy began easing restrictions in early May although social distancing rules are still in place and huge events banned.

Nevertheless, the improved health situation and the huge government support have helped lift sentiment, with a closely-watched survey showing confidence among investors surging to its highest level since before the financial crisis.

 

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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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