Soaring energy prices dampen German consumption – Ministry of the Economy
Soaring energy prices due to Russia’s war in Ukraine will dampen private consumption in Germany this year, the economy minister said on Wednesday, although it is too early to quantify the impact on growth.
The ministry said in its monthly report that the impact of the Russian invasion on economic output depended on the duration and intensity of the conflict which began on February 24. Finance Minister Christian Lindner told a news conference after the government approved spending plans that told consumers it would soon present a supplementary budget to cushion the impact of the war.
The spending plans include measures totaling 4.5 billion euros ($4.96 billion) this year to help consumers with higher prices, including tax breaks for commuters. Lindner is also planning a discount on gasoline to help motorists cope with soaring prices for up to three months. The plan could meet resistance from environmental Greens who say it amounts to subsidizing fossil fuels and that such a scheme should not be universal but apply only to low-income commuters.
The Economy Ministry said the war in Ukraine could disrupt supply chains that are slowly recovering from bottlenecks during the pandemic. The economy contracted in the last quarter of last year and an index of investor sentiment released on Tuesday fell sharply, indicating a likely recession.
The ministry said accelerating inflation remained a major concern for the economy and consumers and businesses were likely to face higher energy bills as Germany remained dependent on gas and oil. Russians. “Since the start of the military invasion, there have been extreme increases in the price of energy and raw materials,” the ministry said. “Trade flows and supply chains are also heavily impacted.”
Gas and electricity bills for German households taking out new contracts hit a record high this month and will ripple through the rest of the population, according to data released on Wednesday. Chancellor Olaf Scholz’s government, which is led by his Social Democrats with the Greens and Lindner’s business-friendly Free Democrats as a junior partner, had already taken steps to cushion the economic impact of the war and the surge resulting energy prices.
A surcharge on electricity bills to fund renewable energy expansion will be scrapped from July instead of next year and companies with operations in Russia can apply for subsidies. (Written by Joseph Nasr Edited by Maria Sheahan, Mark Potter and Jonathan Oatis)
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