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ECONOMY

Consumer confidence edges up slightly

Consumer confidence in Germany has risen for the first time in three months amid burgeoning optimism that Europe's biggest economy has put the worst of the debt crisis behind it, a survey found on Tuesday.

Consumer confidence edges up slightly
Photo: DPA

Market research company GfK said its household confidence index was forecast to inch upwards to 5.8 points in February from 5.7 points in January, a statement said.

“It is the first time in three months since the index has gained slightly in value,” GfK said.

The January figure was revised upwards from an original reading of 5.6 points.

GfK said that both consumers’ income expectations and their willingness to spend picked up sharply and their economic expectations were also on the rise.

“The current calm on the financial markets is making Germans more confident at the start of this year,” the statement said. “Despite a difficult fourth quarter, consumers expect the economy to pick up again during the course of the year.”

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.

Other recent confidence indicators – such as the ZEW investor confidence index and the Ifo business climate index – have risen sharply recently on hopes that Europe’s top economy will bounce back from a dip in growth at the end of last year and boost prospects for the eurozone as a whole.

“German consumers have taken some comfort from the latest calm on financial markets, as well as the improvement in business confidence,” said ING Belgium economist Carsten Brzeski.

“If the latest improvement of business confidence really leads to the expected rebound of the economy, the labour market should remain almost unharmed, boding well for private consumption this year,” the expert said.

The GfK reading “is another small piece of evidence that domestic demand should be an important growth driver in 2013,” Brzeski concluded.

Annalisa Piazza at Newedge Strategy agreed. The rise in the GfK index “confirms the recent resilience in confidence,” she said.

“Recent business confidence indicators support the idea of a modest recovery in activity in early 2013, most likely in the second quarter. Today’s Gfk survey confirmed the relatively rosy picture for business expectations,” she said.

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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