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ECONOMY

Steinbrück mulling state loans to combat credit crunch

German Finance Minister Peer Steinbrück said on Wednesday he was considering giving low-interest state loans to cash-strapped firms in order to prevent a credit crunch hampering a recovery in Europe's biggest economy.

Steinbrück mulling state loans to combat credit crunch
Photo: DPA

“If the efforts of banks are not sufficient to supply the economy with enough fresh cash, the state will have to make use of other measures,” Peer Steinbrück told the Handelsblatt business daily in an interview.

“This includes putting the (state development bank) KfW in a position to give loans to banks but with the clear condition that the low interest rates are passed completely and verifiably on to the companies,” he said.

Steinbrück said that other instruments could include state export guarantees and government help for credit insurers.

“There is no proof of a comprehensive credit crunch across the whole economy but in some sectors – electronics, machinery, suppliers, chemicals and shipbuilding – conditions have definitely worsened,” Steinbrück said.

“We also have clear signs that things are tight for very small and big firms,” he said.

Germany exited its worst recession in six decades with growth of 0.3 percent in the three months to June but economists and companies have warned that the reticence of banks to lend money was hampering a continued recovery.

The paper cited an Economy Ministry report as saying that loans in the second quarter were up 0.2 percent compared to the previous three months, and that year-on-year the increase was 4.3 percent. Interest rates were up 0.35 percentage points in June, the newspaper noted.

Steinbrück also hit out at banks and institutional investors following the recent sharp rises on stock markets, saying they “obviously prefer putting money in shares than doling out loans.

“I see this as evidence that the gambling mentality is winning the upper hand again after two years of financial market crisis,” he said.

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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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