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ECONOMY

Business confidence posts surprise rise

Germany's Ifo business confidence index posted a surprise rise on Friday, suggesting investors remain positive about prospects for Europe's top economy despite the Greek debt crisis and concerns about US growth.

Business confidence posts surprise rise
Photo: DPA

The monthly Ifo business climate rose in June, its first increase since February, to 114.5 points from 114.2 points in May, beating expectations of 113.5 points, according to a poll of economists by Dow Jones Newswires.

“The German economy is experiencing a robust upswing. The business climate in manufacturing continues to be good,” Ifo President Hans-Werner Sinn said.

The closely-watched index is based on a survey of around 7,000 firms in manufacturing, construction, wholesaling and retail.

The Financial Times Deutschland suggested that the German economy might be immune to the risks of the debt crisis, with the Ifo index this month reaching the highest level since reunification back in 1990.

Yet managers may not be as optimistic as it seems, the FTD said. The mood among industrial and wholesale sectors is high, but values for retail are less rosy, with traders sceptical about the immediate future.

Earlier this week, the Centre for European Economic Research (ZEW) survey of economic sentiment fell sharply on worries about the eurozone debt crisis and growth prospects for the US.

Ben May, economist at Capital Economics, said the Ifo “defies” other evidence that the German economy’s impressive recent expansion is slowing.

“Nonetheless, we still think that (gross domestic product) growth will weaken over the remainder of the year,” May said in a research note.

“All in all this is a positive surprise. We had expected a downturn of the index,” said Marco Bagel from the Postbank told the FTD. “One can assume then that the second quarter will turn out to have been better than one had expected.”

“We will get a normalisation. We are well away from stagnation,” said Dirk Schumacher, economist at Goldman Sachs.

But most prognoses suggest a weakening of growth in the second half of the year.

AFP/The Local/hc

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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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