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ECONOMY

New car inducement scheme only works for one in four

The cash for clunkers scheme to encourage people in Germany to buy new cars is having a far smaller impact than is widely believed, according to a study conducted for the Welt am Sonntag newspaper.

New car inducement scheme only works for one in four
Photo: DPA

The scheme, which offers €2,500 cash to anyone who trades in their old car and buys a new one, has reportedly done much to protect the German car industry from the worst of the economic downturn.

Some dealers have featured in news reports talking about a flood of customers coming in, cash in hand, ready to buy new cars.

But the Welt am Sonntag-commissioned study by the Institute for Economic Research in Halle showed that 75 percent of those who took the €2,500 would have bought a new car this year even without the cash incentive.

Even if the collapse in sales early in the year, which sparked the scheme, had continued, only 500,000 cars would not have been sold, the paper says.

In order to influence the buying behaviour of one person, three others have been paid the money when they would have bought a new car anyway, the paper calculates.

Each new car bought as a direct result of the cash for clunkers scheme has actually cost the tax-payer €10,000, the paper reports.

But Finance Minister Peer Steinbrück was unapologetic, his spokesman defending the scheme and telling the paper, “We don’t expect anyone to buy a new car just because of the premium. It was our intention that someone who wants to buy a new car does it now and does not wait until 2010 to spend the money.”

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ECONOMY

Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s. 

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