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Germany needs to dial in energy-relief steps in inflation battle

© Reuters. FILE PHOTO: The Television Tower glows at dusk next to the Protestant Berlin Cathedral with a reduced lighting to save energy due to Russia’s invasion of Ukraine in Berlin, Germany August 5, 2022. REUTERS/Lisi Niesner

BERLIN (Reuters) – Germany must dial in its energy-relief measures in the face of sky-high inflation that is hurting households and businesses, and clouding the economic outlook, according to the annual report from a panel of five economic advisers.

The panel said relief should be provided, as far as possible, only to households that cannot cope with high energy prices and firms with a viable business model that face a particularly big burden, while the top income tax rate should be raised or an energy solidarity tax imposed on high earners.

The panel cited a robust labour market and a boost from the relief measures, especially a gas price brake, in its slightly less pessimistic outlook for the German economy, predicting 1.7% growth this year and a dip of 0.2% next year.

The latest government forecast sees 1.4% growth this year and a 0.4% contraction next year.

Additionally, expanding and diversifying energy supply while encouraging consumers to reduce usage are essential, it said.

“Germany has to adapt to a new reality,” said one member of the panel,” Veronika Grimm. “In order to reduce dependencies and increase the resilience of value chains, energy imports and the sources of critical raw materials must be diversified.”

The state should support companies in these efforts through strategic alliances, trade agreements or investment guarantees for German companies in non-EU countries, said the panel.

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