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ECONOMY

Analysts expecting booming German growth

The German economy is showing massive improvement after the country's worst post-war recession last year, and with latest growth figures due on Friday, analysts are expecting rosy results.

Analysts expecting booming German growth
Photo: DPA

The strong figures they await will be even more notable as fears grow that the United States and now China, the Asian powerhouse, are showing distinct signs of slowing, raising questions about the overall recovery.

“The German economy is bound to see its strongest quarterly growth rate since reunification” in late 1990, ING senior economist Carsten Brzeski said.

As Europe’s biggest economy, and the number two exporter worldwide after China, Germany thundered ahead in the second quarter of 2010 and might surpass growth of 1.8 percent posted in the first three months of 1992.

Analysts polled by Dow Jones Newswires forecast on average a more modest quarterly rise of 1.4 percent and an annualised gain of 2.6 percent, solid numbers for western Europe.

“Even more important, however, whether growth is at 1.3 percent on the quarter or 2.0 percent is the fact that the growth momentum seems to be holding up well in the third quarter,” Goldman Sachs economist Dirk Schumacher noted.

Last week, European Central Bank president Jean-Claude Trichet said: “We consider that both the second quarter and probably the third quarter are likely to be better than we had anticipated” for the full 16-nation eurozone.

Schumacher highlighted German job prospects as “the most important bit of information in that respect as it clearly shows that companies believe that this is a genuine recovery.”

Though German unemployment inched up to 7.6 percent last month, Economy Minister Rainer Brüderle has forecast the number of jobless will soon drop to less than three million.

A state-subsidised programme that let firms cut workers’ hours during the downturn has kept unemployment from spiking, something that could support consumption in coming months.

While an export surge pushed the German trade surplus up to €14.1 billion in June, imports leapt to €72.4 billion, an all-time record since figures were first compiled in 1950.

In France, the second biggest eurozone economy, official data due Friday are expected to show a smaller rebound in activity but this might still be enough for Paris to reach its full-year target of 1.4 percent.

That is also Berlin’s official forecast, but it will probably be raised after a central bank estimate was revised higher to 1.9 percent in June.

German inflation could come in at a tame 1.2 percent this year, added Germany’s central bank, the Bundesbank, a level seen already in May and July.

The change of fortunes from 2009 is due in large part to the fact that Germany has become more competitive and its machine tools, autos and chemicals are highly valued worldwide.

German workers who made wage sacrifices to preserve their jobs as the economy contracted by 4.9 percent last year are letting it be known that payback is now in order, however.

Second-quarter growth will compare with a gain of 0.4 percent in the same period a year earlier, the first quarterly rise after a year-long recession.

In the first three months of 2010, German economic activity expanded 0.2 percent, the same rate as at the end of 2009.

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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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