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ECONOMY

Madrid hails export-led recession ease-up

Spain's two-year, job-wrecking recession eased in the second quarter of 2013, official data showed on Thursday, as Madrid anticipated an imminent, export-powered end to the downturn.

Published: 29 August 2013 09:53 CEST
Madrid hails export-led recession ease-up
The Spanish economy emerged only gingerly from that downturn in 2010 before sliding back into recession in mid-2011.Photo: Pierre Philippe Marcou/AFP

Activity in the eurozone's fourth largest economy shrank by 0.1 percent in the April-June period when compared to the previous quarter, the National Statistics Institute said in a report.

The shallow decline, which compared to a 0.4-percent drop in the first quarter of the year, will raise hopes that Spain is set to shake off a stubborn, double-dip recession that pushed the unemployment rate to 26.26 percent in the second quarter.

A property market crash in 2008 plunged Spain into a recession, destroyed millions of jobs, left banks awash in bad loans and plunged the government deep into debt.

The economy emerged only gingerly from that downturn in 2010 before sliding back into recession in mid-2011.

Prime Minister Mariano Rajoy's conservative government and the Bank of Spain now hope the downward cycle may be close to an end, both saying the economy could post growth in the third quarter, propelled by growing exports and a surge in tourism.

On an annual basis the economy contracted by 1.6 percent in the second quarter following a 2.0 percent decline in the first three months of the year.

The European Commission predicts the Spanish economy will shrink by 1.5 percent this year while the International Monetary Fund forecasts a decline of 1.6 percent.

The statistics agency also reported provisional data showing that inflation slowed in August to 1.6 percent from 1.9 percent in July, as increases in fuel and lubricant prices slowed.

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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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