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ECONOMY

French economy to contract in final quarter

The French national statistics agency INSEE said Thursday it expects the country's economy to contract by 0.2 percent in the final quarter of this year and the unemployment rate to jump above 10 percent.

Published: 21 December 2012 09:22 CET

INSEE also lowered its forecast for overall growth in 2012 to 0.1 percent from 0.2 percent, further below the 0.3 percent on which the government has based its spending plans.

The Bank of France forecasts the French economy will contract by 0.1 percent in the final quarter of this year.

While France's economy posted 0.2 percent growth in the third quarter based on a 1.0 percent jump in manufacturing, INSEE expects a reversal in the final months of this year.

"Activity should thus fall in Q4 2012 (-0.2%), notably because manufacturing production is set to fall back distinctly (-1.5%)," INSEE said in its December forecasting report.

The agency expects the French economy to pick up in 2013, but only modestly with 0.1 percent growth in the first and second quarters.

But INSEE also expects unemployment to keep on climbing, with the economy shedding 40,000 jobs each quarter.

It sees the unemployment rate in mainland France rising to 10.1 percent in the final quarter of this year from 9.9 percent in the period from July to September.

INSEE expects it to rise to 10.5 percent in mid-2013.

The INSEE forecasts also undermine the government's forecast of 0.8 percent growth in 2013, on which is pinned its pledge to the EU to cut the public deficit back to the 3.0 percent of GDP limit from 4.5 percent.

INSEE head of forecasting Cedric Audenis said if their forecast of 0.1 percent growth in the first and second quarters held then the French economy would have to grow by 1.0 percent in the final two quarters to achieve the government's 0.8 percent growth target.   

Failure to hit the target could force the government to make more spending cuts and raise more in taxes.

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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.

Published: 30 May 2023 15:46 CEST
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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