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ECONOMY

German industrial output plunges

German industrial output in July slumped 1.8 percent from June, more than three times the downturn analysts had expected, underscoring the chance that Europe's biggest economy could be in recession, official figures showed Friday.

Published: 5 September 2008 15:36 CEST
German industrial output plunges
Photo: DPA

Economists polled by Dow Jones Newswires had forecast a drop of just 0.5 percent. “This clearly increases the probability that real GDP (gross domestic product) has contracted in the third quarter, too, meeting the oft-applied definition of a recession,” said Commerzbank analyst Ralph Solveen.

The German economy contracted 0.5 percent in the three months to June. The economy ministry also revised its initial industrial output estimate for June lower, reporting a gain of 0.1 percent on a monthly basis rather than 0.2 percent as announced originally.

July’s drop was thus the fourth in five months, Capital Economics economist Jennifer McKeown said. She noted too, that “the annual rate has fallen to minus 0.6 percent, marking the first time that production has contracted on an annual basis in nearly five years.”

In July, industrial and construction sector output fell 2.0 percent, while the volatile energy sector posted growth of 1.2 percent. Within the industrial sector, manufacturers of machine tools and other capital goods reported a drop of 3.7 percent.

“German industry is now facing increasing difficulties in its non-eurozone capital goods markets, which had remained relatively resilient so far,” said UBS economist Martin Lueck.

The ministry also calculates a two-month sliding average to smooth out exceptional movements and this showed that overall output in June and July had fallen by 1.7 percent from the level in April and May.

Industrial orders, meanwhile, fell in July for a record eight month in a row, official figures showed on Thursday, losing 1.7 percent compared with June.

“The situation in the industrial sector will not improve anytime soon,” said Alexander Koch at UniCredit Markets. “We rate the chances as high that the German economy will slide into a technical recession.”

Both Solveen and Koch said there was no chance the downward trend would improve in the coming months. But McKeown added that “one possible source of comfort is that the government claims that the latest figures have been distorted by workers taking extra days off around the school holidays.”

Lueck’s opinion was that “this downturn will probably turn out to be less painful for the German economy than the last recession in 2002-03.”

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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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