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ECONOMY

German economy grows faster than expected

UPDATE: Growth of the German economy, Europe's biggest, picked up fractionally at the end of last year, propelled by buoyant exports, official data showed on Friday.

Published: 14 February 2014 08:49 CET
German economy grows faster than expected
Exports gave Germany's economy a surprise boost in the final quarter of 2013. Photo: DPA

German gross domestic product (GDP) grew by 0.4 percent in the period from October to December, slightly faster than analysts' expectations and also up from growth of 0.3 percent in the preceding three months, the federal statistics office Destatis said.

"Positive impulses came primarily from net foreign trade," Destatis explained.

"According to preliminary calculations, exports grew much more strongly than imports. By contrast, the signals from domestic demand were more mixed," the statisticians said.
 
   
Public spending stagnated and consumer spending was down slightly, but positive developments were seen in investment.
 
Investment in both construction and equipment was up strongly, but companies also sharply reduced their stockpiles "and that put the brakes on growth," Destatis said.
 
Analysts were cheered by the better-than-expected data.
   

The numbers were "a positive surprise," said ING DiBa economist Carsten Brzeski, asking whether the German economy was "finally picking up".
   
"Recent monthly data had painted a rather confusing picture with strong soft data but disappointing hard data," the expert said.
   
"Today's growth outcome is actually better than monthly hard data had suggested.
   
"Looking ahead, the German economy should gain further momentum. Filled order books and the latest inventory reductions bode well for industrial production in the coming months. 
 
"Moreover, the construction sector, driven by the mild winter weather and government investment, should be growth-supportive throughout 2014," Brzeski said.
   
"Germany remains the economic stronghold of the eurozone. In fact, this morning's data was one of those positive surprises the eurozone has seen too seldom over the last few quarters. Let's hope it won't be the last one," he said.
   
Newedge Strategy analyst Annalisa Piazza was also upbeat, even if she found the GDP data "a bit of a mixed bag".
   
"Prospects for the future remains relatively bright and we expect activity to continue to improve at a moderate pace going forward," she said.
   
Investment is key
   
Berenberg Bank economist Christian Schulz said exports likely received a boost from the strengthening global recovery, particularly in the US and Britain and stabilizing demand in the euro area.
   
"But since exports are unlikely to remain a reliable growth driver in 2014 due to potentially stronger import growth and the likely wobbles in some emerging markets, the strength in investment is of key significance," Schulz said.
   
"With uncertainty receding companies are beginning to use the cash reserves built up during the crisis to exploit their strong competitive position and invest."
   
Schulz said he found the disappointing drop in household spending puzzling, "given how strong the fundamental position of households is, with low unemployment, low inflation, rising wages and consumer confidence reflecting receding uncertainty.
   
"We do expect consumption to continue to make moderate positive growth contributions in 2014, but investment is the key factor behind our optimistic forecast of 2.2 percent growth in 2014," Schulz said.

 
Taking 2013 as a whole, Destatis confirmed a preliminary estimate from last month which showed that German growth slowed to just 0.4 percent last year, the slowest growth for four years.
 

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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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