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ECONOMY

Economy thunders ahead with record growth

Germany posted its best quarterly growth since reunification in 1990 on Friday, with one economist saying it was "in a league of its own" as other leading industrial nations showed signs of slowing down.

Economy thunders ahead with record growth
Photo: DPA

The German economy, Europe’s biggest, thundered ahead at a rate of 2.2 percent in the second quarter from the previous three-month period, and 4.1 percent from the second quarter of 2009, the national statistics office said.

“The recovery of the German economy, which lost momentum at the turn of 2009/2010, is really back on track,” the Destatis office said. “Such quarter-on-quarter growth has never been recorded before in reunified Germany.”

Elsewhere, major economies in North America and Asia are showing signs of slowing down while the 16-nation eurozone might see better than expected figures in the third quarter too.

ING senior economist Carsten Brzeski said Germany was “playing in a league of its own.”

Destatis also revised the first quarter growth figure higher to 0.5 percent from an initial estimation of 0.2 percent, the rate seen at the end of 2009. After suffering its worst post-war recession in 2009, “we are now experiencing XL growth,” Economy Minister Rainer Brüderle said.

Analysts polled by Dow Jones Newswires had forecast a second-quarter rise of 1.4 percent and an annualised gain of 2.6 percent.

The record figure is especially 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 global recovery.

But while Germany normally relies on exports to underpin growth – it is the second biggest exporter worldwide after China – “household and government final consumption expenditure contributed to GDP growth, too,” Destatis said.

“Structurally in a much better shape than many other industrialized countries, it was just a matter of time before the German economy would pick up further speed,” Brzeski said.

UniCredit counterpart Alexander Koch said Germany had “put the pedal to the metal” in the second quarter, and added that “the massive rebound in the spring GDP figures impressively confirms the revival of the German business model.”

Barclays Capital senior economist Julian Callow said the latest figures put Germany “on track to grow around three percent or even slightly more for this calendar year, significantly stronger than our prior estimate.”

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

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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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