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ECONOMY

German industrial output falls again

German industrial production declined further in April, the ministry of industry said Friday, another sign that Europe's biggest economy is slowing down.

Published: 6 June 2008 17:23 CEST
German industrial output falls again
Photo: DPA

Output showed a surprise decrease of 0.8 percent compared to the previous month, the ministry said, the same rate as in March, which was revised lower from an initial estimate of a 0.5 percent decrease. Analysts polled by Dow Jones Newswires had expected no change in April.

The Economy Ministry said industrial orders had fallen for the fifth straight month in April, declining by 1.8 percent on a monthly basis after a fall of 0.5 percent in March.

Weak construction activity weighed in particular on the results released on Friday, with output decreasing by 2.9 percent after a mild winter moved up work that would normally rebound in the spring. But manufacturing activity also fell by 0.7 percent, and energy output shed 1.7 percent following a gain of 3.4 percent in March.

The ministry presented two-month data designed to smooth out potential discrepancies, and these showed that overall industrial production in March and April had fallen by 1.2 percent from the January-February period.

An annual comparison revealed however that industrial activity had gained 4.5 percent in March and April compared with the same period in 2007. The figures suggested the German economy was headed for a slowdown following a first quarter that was surprisingly strong.

“In the coming months, one must expect slightly more restrained production,” a ministry statement said.

At Capital Economics, European economist Jennifer McKeown said the April drop was “a clear sign that the previously strong (industrial) sector is beginning to falter.”

For Andreas Rees at UniCredit Markets: “The signs of a slowdown even in the so far resilient manufacturing sector are unmistakable.”

Bank of America’s Holger Schmieding said bluntly: “The boom is over. Just as the European Central Bank is shocking markets by pointing to a rate increase in July, the pillars of the economic upswing are crumbling.”

On Thursday, ECB president Jean-Claude Trichet caught markets by surprise when he said the bank might raise its main lending rate slightly next month to contain expectations that eurozone inflation could leap higher than the record 3.6 percent posted in May.

That would dampen economic activity, which Schmieding forecast would now “expand hardly at all in the next two quarters,” since German manufacturing had been the main reason why eurozone growth had thus far proven resilient to high oil prices, a rise of the euro against the dollar and tighter credit conditions.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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