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SECURITY

BND sees economic crisis boosting China

The global financial crisis is resulting in a "geopolitical metamorphosis" that is likely to boost China's standing in the world, the head of Germany's foreign intelligence service said Tuesday.

BND sees economic crisis boosting China
Photo: DPA

“If China recovers more quickly than other (countries), its weight will increase in the region compared to other players,” Ernst Uhrlau, head of the Bundesnachrichtendienst (BND), told the Handelsblatt daily in an interview.

“And internationally, if China becomes the motor of the (global) economic recovery, the country will … have greater influence on the rules of the game. We are most likely experiencing a geopolitical metamorphosis.”

China has doubled its stated defence budget since 2006 and in March announced it would spend 480 billion yuan ($70 billion) in 2009, a 14.9-percent increase on the year before. Experts say actual spending is considerably higher.

The United States, Japan and their allies such as Germany have long expressed concern about China’s military build-up and what they see as a lack of transparency about the intent behind the expansion.

In March a Pentagon report said China’s pursuit of sophisticated weaponry was altering Asia’s military balance and could be used to enforce its claims over disputed territories.

In February the BND, whose job is to inform the government about security and foreign policy issues, compiled a secret report on the possible outcomes of the global downturn, the Handelsblatt said. It laid out three different scenarios: that the economy starts to recover in 2009 and the current balance of power is maintained; that China recovers

more quickly and emerges stronger; and that the economy fails to recover.

Supporting the second scenario is the fact that China is devoting a large part of its economic stimulus package to modernise its infrastructure but also its military, Uhrlau said.

“Under this scenario others would be caught in China’s wake, because growth primarily comes from there. Certain inbalances in Asia would be strengthened. India for example would be affected,” he said.

Uhrlau also said that the global recession might lead to more people joining Islamic extremist groups because these organisations see the crisis as “proof that the West’s supposed domination has lapsed.”

“This could boost recruitment for militant or Jihad groups,” he said.

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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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