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ECONOMY

Consumer confidence hits five-year high

Consumer confidence in Germany, Europe's top economy, is continuing to defy the crisis and rose to the highest level for five years on the back of rising income expectations, data showed on Friday.

Consumer confidence hits five-year high
Photo: DPA

Market research company GfK said its household confidence index was forecast to rise to 6.3 points in November, its highest level since October 2007, from 6.1 points the previous month, a statement said.

GfK said consumers’ income expectations for the coming months had picked up noticeably, while both their assessment of the economic situation and willingness to spend had also improved slightly.

“Germans’ fears of a recession have not increased further this autumn,” the GfK wrote.

The headline consumer confidence reading is based on responses from about 2,000 households on their expectations about pay and the economy as a whole in the coming months, as well as their willingness to spend money.

The improved reading appears to fly in the face of increasing signs European powerhouse Germany is feeling the pain from the crisis after initial resistance, with the closely watched Ifo business confidence index dropping for the sixth consecutive month earlier this week.

This led some analysts to predict that Germany could soon fall into recession.

“German consumer confidence reached a fresh new high since 2007 in November despite signs of slowing activity,” said Newedge Strategy analyst Annalisa Piazza.

“The outcome is stronger than expected and probably reflects the less volatile financial markets and hope that EU officials and the European Central Bank will find a way out of the ongoing financial crisis,” she said.

Berenberg Bank economist Christian Schulz said: “It’s not consumer confidence that is holding back growth in Germany.

“The fundamentals for German household spending remain positive,” he said, pointing to stable inflation and low unemployment.

Nevertheless, other forward-looking indicators – such as Ifo, the ZEW index of investor confidence and even the EU Commission’s consumer confidence index – were all pointing down, Schulz noted.

“Germany’s economy is likely to stagnate until the end of the year as exports and investment remain weak under the weight of the euro crisis.

Private consumption may offset some decline in other GDP (gross domestic product) components,” Schulz said.

“It looks as if nothing can spoil German consumers’ good humour,” said ING Belgium economist Carsten Brzeski.

“German consumers remain cool and serene despite the ongoing euro crisis,” he said.

But Brzeski pointed out that “given past experience, optimistic consumers have never been sufficient to prevent the economy from falling into a recession. However, even if Germans have hardly become real happy-go-luckies, the current optimism is welcome news for the economy,” he said.

AFP/jcw

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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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