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ECONOMY

Germany slashes 2009 growth forecast

Germany slashed its economic forecast on Wednesday, predicting one of the worst recessions in the developed world this year. But Economy Minister Karl-Theodor zu Guttenberg raised hopes of a recovery in 2010.

Germany slashes 2009 growth forecast
Photo: DPA

Berlin expects Europe’s largest economy to contract by a crushing six percent in 2009 – which would be the most dramatic downturn in Germany since the Great Depression.

“The economic decline that we are expecting this year is predominantly the consequence of the massive global slump and the related massive decline in our exports,” said Guttenberg said at press conference to present the revised forecast.

The latest estimates are a sharp downward revision from official estimates published last year, which predicted a contraction of 2.25 percent.

But Guttenberg also said the government predicted meagre growth to return next year, with the economy likely to expand by 0.5 percent in 2010.

If the six-percent slump comes to pass, Japan would be the only other major industrial nation to suffer worse than Germany in 2009. The International Monetary Fund currently expects the world’s second largest economy to contract by 6.2 percent decline this year.

Germany – the world’s top exporter – has seen demand for its goods dry up as customers around the globe suffer from the financial crisis. Recent data showed exports plunged by 23.1 percent in February.

Despite such dire figures, zu Guttenberg rejected the idea that Berlin should implemented a third stimulus package to inject some life into the economy, arguing it would be “counterproductive.”

Germany has already put into place two stimulus packages worth around €81 billion ($106 billion) but was criticised both at home and abroad for being both too slow to act and too conservative.

These first two packages are “already working,” zu Guttenberg said and a third package would serve only to create more “uncertainty amongst investors, consumers and taxpayers.”

“Sitting on our hands and being morose is the last thing we need now,” said the minister.

As the economy nosedives, jobless lines are set to grow, the Economy Ministry added, with an estimated 3.72 million unemployed this year, growing to 4.62 million in 2010 – the “peak,” according to zu Guttenberg. In 2008, unemployment averaged 2.27 million.

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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.

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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