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ECONOMY

Growth forecast of 2.8 percent confirmed by top institutes

Germany will steam ahead in 2011, leaving most of its rivals trailing in its wake, the country's leading economic institutes predicted Thursday, publishing bullish forecasts for Europe's top economy.

Growth forecast of 2.8 percent confirmed by top institutes
Photo: DPA

The economy is expected to grow by 2.8 percent this year, with the pace dropping slightly next year to 2.0 percent according to the five top institutes in their closely-watched biannual report.

This was a large upwards revision to their October forecasts for growth of 2.0 percent this year.

“In the spring of 2011, the world economy is enjoying an upswing, mainly due to positive results from emerging economies. Germany too is experiencing a strong upturn,” the five organisations said in their report.

“The recovery is being driven both by external demand and by domestic consumption … much indicates that the expansion will remain strong in the coming months,” the economists added.

Unemployment in Germany is already at its lowest level since the country reunified in 1990 but the buoyant economy is poised to drive down joblessness further, with the rate seen at 6.9 this year and 6.5 percent in 2012.

“Average unemployment will be under the three-million mark in 2011,” said Economy Minister Rainer Brüderle. “This is all good news.”

“The clear message of the spring forecasts is that the dynamic economic upswing is continuing,” he added. “The hole that the crisis ripped in our economy will be repaired this year already, according to the institutes’ projections.”

Berlin is set to publish its own growth forecasts next week and is likely to raise its current estimate of 2.3 percent for this year.

The strong economy will also bring down Germany’s public deficit at a time when its European rivals are battling to meet EU deficit rules.

Portugal’s public finances are in such a bad state that it decided Wednesday to become the third member of the eurozone, after Greece and Ireland, to seek a multi-billion-euro bailout.

Germany’s deficit should be 1.7 percent this year and shrink further to 0.9 percent in 2012.

Nevertheless, the institutes warned of clouds on the generally sunny horizon coming from the Middle East and Japan, although the economic impact of the nuclear disaster in Fukushima should be “short-lived.”

Andreas Rees, an analyst from Italian financial services group Unicredit, disagreed, warning that German companies could be hit hard by shortages from Japanese suppliers afflicted by the recent earthquake and tsunami.

“Some input goods from Japan might be highly complementary and cannot therefore be replaced easily,” Rees cautioned.

In a further piece of positive news for Germany, official data published earlier Thursday showed that industrial production rose by 1.6 percent in February, more than three times faster than analysts expected.

AFP/adn

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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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