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ECONOMY

Consumer confidence hits year’s low

German consumer sentiment has been hit by the transatlantic debt crisis and fears of a new recession, falling to its lowest level since late last year, the GfK research institute said Thursday.

Consumer confidence hits year's low
Photo: DPA

GfK said its index of household confidence for September was 5.2 points, the lowest figure since November 2010. GfK also revised down its August reading to 5.3 points from the initial 5.4 points.

That was the sixth consecutive decrease and was in line with an average of analysts forecasts compiled by Dow Jones Newswires and recent other data all showing the Germany economy, Europe’s biggest, beginning to slow.

“The worsening of the international debt crisis and rising fears of a return to recession for the global economy have clearly left their mark on the economic optimism of Germans,” the statement released by the institute said.

GfK noted however that shoppers’ willingness to buy has improved once again, even though they think the economy and their own incomes will worsen in the coming months.

Economy Minister Philipp Rösler noted the dip in consumer confidence but insisted that it remained “robust.” He added in a statement that “household confidence will remain a pillar of growth in the second half” of the year.

Berenberg Bank senior economist Christian Schulz was modestly upbeat about the latest data as well, noting that as the GfK index remained above 5.0 points it was still doing better than in any of the three previous years.

“Consumer confidence is one of the less reliable leading indicators of growth in Germany but the fact that it is decreasing at a moderate pace, and that purchasing intentions remain firm, gives reassurance that a buyers strike is not in the cards,” Schulz said.

GfK also publishes sub-indices which refer to the current month and its economic expectations index plunged to 13.4 points from 44.6 points in July. Personal income expectations were moderately lower.

The consumer outlook was confirmed moreover on Wednesday by the business

sentiment index released by the Ifo institute, GfK said.

The Ifo index hit a 14-month low in August following its sharpest drop since 2008, a clear sign that Europe’s biggest economy is faltering. Data released by the federal statistics office has shown that the economy grew by just 0.1 percent in the second quarter of 2011, well below the first-quarter figure of 1.3 percent.

The central bank and government officials nonetheless expect growth overall of around 3.0 percent this year.

AFP/mw

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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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