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ECONOMY

Investor confidence tops 10-month high

German investor confidence hit a 10-month high in February amid optimism Europe's top economy will be able to escape from the eurozone crisis relatively unscathed, data showed on Tuesday.

Investor confidence tops 10-month high
Photo: DPA

The ZEW think tank’s economic expectations index rose by a whopping 27.0 points in February to stand at plus 5.4 points.

It is the third consecutive monthly increase in the closely watched indicator and brought the barometer back into positive territory for the first time since May 2011 and to its highest reading since April 2011.

The increase was also much bigger than expected: analysts had been pencilling in a much more modest rise of around 10 points.

“The further strong increase in economic expectations shows that analysts believe the current lull in growth in Germany is unlikely to intensify,” the ZEW said.

“Positive early indicators from the United States give rise to hope of a stabilisation in the global economy. And progress in the negotiations between Greece and its creditors will also have helped reduce uncertainty in the euro area,” it said.

“From analysts’ point of view, there is a good chance that the German economy will find itself on an upward trend in the second half of the year,” said ZEW president Wolfgang Franz.

“Domestic demand will remain the main pillar of growth because the favourable labour market situation means consumers need not fear for their jobs. It remains crucial that a solution be found to the eurozone debt crisis,” Franz insisted.

For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.

The sub-index measuring current assessments rose by 11.9 points to 40.3 points.

The ZEW index is the only barometer of investor confidence in Germany and this month’s reading was based on responses from 284 analysts. A frequent criticism against it is that the index can be volatile and is therefore not a particularly reliable indicator.

Other business confidence indices, such as the purchasing managers’ index or the all-important Ifo survey, which is based on as many as 7,000 responses in the real economy, are seen as more accurate indicators.

Earlier in Berlin, the economy ministry said the Organisation for Economic Co-operation and Development (OECD) is predicting that German growth will slow to just 0.4 percent this year from 3.0 percent in 2011 as a result of weak foreign trade and the eurozone debt crisis.

The German government itself is pencilling in growth of 0.7 percent this year and has insisted there is no danger of the world’s second-largest exporter after China falling into recession.

AFP/mry

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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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