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ECONOMY

Euro crisis, inflation sap consumer confidence

The eurozone debt crisis and higher energy prices have sapped German consumer sentiment, resulting in a third consecutive drop in the GfK index, the research institute said on Wednesday.

Published: 25 May 2011 14:06 CEST
Euro crisis, inflation sap consumer confidence
Photo: DPA

On the basis of a survey of 2,000 people done this month, the forecast index for June dropped to 5.5 points from 5.7 points in May.

“The worsening of the debt crisis in Greece and continuing high energy prices are dampening the optimism that German consumers have been exhibiting up to now,” a GfK statement said.

“The still very positive general conditions in Germany, such as falling unemployment and the strong economic upswing, are currently being somewhat overshadowed,” it added.

A breakdown of the results showed that shoppers’ propensity to make large purchases had declined and that dogged inflation had raised fears related to personal revenues.

Consumers were still relatively upbeat with respect to the country’s economic prospects however, though that indicator declined slightly as well.

Economy Minister Philipp Roesler estimated Tuesday that business activity would expand by “at least” 2.6 percent this year.

The GfK poll stood in contrast to one published Tuesday by the Ifo research institute, which found business leaders generally upbeat about the situation at present, particularly in the retail sector.

Data released by the national statistics office showed that consumption gained 0.4 percent in the first quarter from the previous three-month period.

That was in large part the result of falling unemployment. But Andreas Rees, chief German economist at the Italian bank UniCredit, said: “Despite substantial tailwind via job creation, we do not think that the German consumer will completely take off this time.”

Wages have not risen substantially while eurozone inflation of 2.8 percent has cut purchasing power, and an ageing German population is putting money aside amid fears that retirement pensions will not suffice, he explained.

“Private consumption has been the orphan of the German recovery,” ING senior economist Carsten Brzeski commented.

“The softening of consumer confidence against the background of higher energy prices shows that commodity-driven inflation is probably the main threat for the German economy,” he said.

AFP/rm

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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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