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China backs Lagarde’s bid to head IMF: report

French finance minister Christine Lagarde received support from the head of China's central bank on Monday in her bid to lead the International Monetary Fund.

China backs Lagarde's bid to head IMF: report
World Economic Forum/Wikipedia (File)

China’s central bank chief voiced support Monday for Christine Lagarde’s bid to lead the International Monetary Fund, Dow Jones Newswires said, in Beijing’s first public statement on the issue.

Zhou Xiaochuan, speaking in London as he accompanied Premier Wen Jiabao on a trip to Europe, said China had already expressed “quite full support” for the French finance minister’s candidacy at the global lender, the report said.

“Of course we still do not know what the final situation will be.

Currently, there doesn’t seem to be anything unclear about it,” he was quoted as saying, indicating front-runner Lagarde’s chances of clinching the top job were high.

The 187-nation Fund has been left reeling after managing director Dominique Strauss-Kahn resigned on May 18 to fight sexual assault charges in New York.

He denies the allegations.

Lagarde visited China earlier this month to try to win support for her candidacy. She told AFP she felt “very positive” after her talks with officials, but Beijing has remained non-committal in public about her bid.

China, India and other emerging nations have balked at Europe’s traditional lock on the leadership of the Washington-based IMF, and Lagarde has vowed to promote reforms to make the lender more representative of the global economy.

The 55-year-old former international lawyer is up against Mexico’s central bank governor Agustin Carstens. But even he has admitted Lagarde’s chances of being elected by the board “are quite high.”

Lagarde has the backing of Europe, which holds seven of the 24 seats on the executive board.

The United States, the largest IMF stakeholder with nearly 17 percent of the vote, has not publicly endorsed either Lagarde or Carstens, considered an emerging-market candidate.

Under a tacit agreement between the United States and Europe, the leadership of the IMF has always gone to a European, while the top job at the World Bank has always gone to an American.

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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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