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ECONOMY

Economists: Germany in a recession now

As European leaders struggle to stave off a looming recession this year, Germany – the continent’s biggest and healthiest economy – is probably already in one, according to economists surveyed by Die Welt newspaper.

Economists: Germany in a recession now
Photo: DPA

Of the economists surveyed at 14 major financial institutions including Deutsche Bank, Allianz and Citigroup, only four said Germany was definitely not in a recession – generally defined as having two consecutive quarters of decline in gross domestic output.

Although the experts said they expected the German economy to remain weak over the first few months of 2012, most believed things would pick up during the year.

Three experts said they thought the economy would be stagnant in 2012, while one said it would contract and the others predicted slight growth of up to 1.4 percent.

The biggest risk factor for Germany is a predictable one: The state of the euro and the continent’s backbreaking sovereign debt crisis, they said.

Though Germany set a record for the volume of exports last year – experts said on Monday it would reach the €1 trillion mark once December data is tabulated – exporting companies were hit by weakening demand toward the end of 2011, particularly from other European countries. There was a decrease in new industrial orders of 4.8 percent in November, Die Welt reported.

The economists questioned said another looming danger would be a European credit crunch, in which banks would curb their lending making it difficult for companies to invest more in their businesses.

“A credit crunch in some member countries of the eurozone, which are particularly plagued by the debt crisis, is almost inevitable,” said Stefan Schilbe an analyst at HSBC.

Still, most expect the German economy to be largely spared credit problems, which are more likely to financially weak countries like Greece or Italy.

Full gross domestic product data for 2011 is expected to be released on Wednesday. The experts all believed Germany would end up with a 2011 GDP growth of about three percent despite year-end contractions, Die Welt reported.

The Local/DAPD/mdm

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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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