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Harsh winter hits growth

Germany’s booming economy slowed in the fourth quarter of last year amid exceptionally harsh winter weather, expanding just 0.4 percent according to figures published by the national statistics office on Tuesday.

Harsh winter hits growth
Photo: DPA

Activity in the three months to December was shy of analyst forecasts for 0.5 percent as compiled by Dow Jones Newswires.

Cold weather and snow in December curtailed construction activity and economists said it would probably bounce back like it did last year.

“The construction sector should rebound forcefully in January,” Goldman Sachs economist Dirk Schumacher said.

For all of 2010, the Destatis office confirmed the economic expansion of 3.6 percent initially estimated in January, marking the strongest growth since German reunification in 1990.

In the last three months of the year, activity expanded by a price-adjusted 4.0 percent from the same period in 2009, it added, slightly less than analyst forecasts for 4.1 percent.

“The upswing of the German economy continued at the end of 2010, though at a slightly slower pace,” Destatis said in a statement.

The economy grew 2.2 percent in the second quarter, slowing to 0.7 percent in the third.

“We think that the absolute boom in German industry is behind us,” UniCredit economist Andreas Rees said.

Once again in the fourth quarter, “a positive contribution was made mainly by net exports,” Destatis said.

“Also, on a domestic scale, both capital formation in machinery and equipment and consumption were up, so that especially the weather-related decrease in capital formation in construction could be offset.”

Detailed results are to be released on February 24.

German Economy Minister Rainer Brüderle said in a statement that “these results show that the upward trend of the German economy is continuing,” and the government still expects growth of 2.3 percent this year.

Brüderle said Germany remained an economic locomotive but some eurozone partners complain that its exports come at their expense.

The value of German exports soared 18.5 percent last year, Destatis figures show, though imports grew by an even faster 20 percent.

ING senior economist Carsten Brzeski said the growth data “showed that the economy has lost somewhat more steam than expected.

“The economic high-flyer of the summer has been brought back down to earth,” he noted. “However, it is not a crash-landing but only a snow-driven stop-over.”

AFP/The Local/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.

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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