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Investor sentiment soars

German financial market confidence surged this month as investors welcomed strong industrial orders, low interest rates and positive US data, the ZEW research institute said Tuesday.

Published: 18 January 2011 13:16 CET
Investor sentiment soars
Photo: DPA

The group’s index soared to 15.4 points from 4.3 points in December, its highest level since July 2010 as the biggest economy in Europe geared up for more growth in 2011.

Analysts polled by Dow Jones Newswires had expected the volatile German indicator to reach 8.0 points, and the new level remained below the historical average of 26.8 points. But it was the third increase running after six declines, leading economists to conclude the economy will remain relatively strong this year.

On Friday, the Ifo index will flesh out a clearer picture of German business sentiment but at least the financial sector was upbeat as the ongoing eurozone debt saga played on with a meeting of finance ministers in Brussels.

They signalled readiness to bump up a euro emergency fund but stressed that vulnerable countries must first put their finances in order.

The ZEW indicator meanwhile, based on a survey of 284 analysts and institutional investors, suggested that “financial market experts expect the dynamic growth of the German economy to continue,” a statement said.

“This development is backed by current data on incoming orders in the German industry,” it added.

German industrial orders posted a surprise 5.2 percent monthly gain in November, indicating solid business activity ahead.

ZEW president Wolfgang Franz also highlighted current low interest rate levels that should boost demand for German goods and said positive data from the US had raised hopes that global growth would continue.

German growth should get an additional boost from increased job security, which typically stimulates household consumption, Franz added.

Meanwhile, investors’ assessments of their current situation changed little but nonetheless gained 0.2 points to an indexed 82.8 points, the highest level since August 2007.

ING senior economist Carsten Brzeski said: “It looks as if there is almost blind trust in the strength of the German recovery.”

Berenberg Bank chief economist Holger Schmieding added that the third consecutive increase in the ZEW index “supports our view that the German economy will stay reasonably robust in 2011.”

Commerzbank’s Ulrike Rondorf concurred, saying: “The camp of optimists believing in an improvement has widened.”

AFP/mry

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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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