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ECONOMY

2015 growth forecast hiked to 2.1 percent

Germany's leading economic institutes sharply raised their growth forecast Thursday, predicting Europe's top economy will expand 2.1 percent this year thanks to cheap oil, the low euro and strong consumer spending.

Published: 16 April 2015 12:05 CEST
2015 growth forecast hiked to 2.1 percent
Robots assembling cars in a Volkswagen factory in Wolfsburg. Photo: DPA

The forecast by four research institutes was sharply higher than the 1.2 percent growth for 2015 they had predicted last autumn.

"The low oil price leaves the Germans more money for consumption, and the low euro is pushing exports," said Timo Wollmershäuser, chief economist at the Ifo Institute, which took the lead this year in writing the annual spring forecast.

The joint paper said that while "consumer spending is the pillar of the upswing", Germany also benefited from "positive impulses from the rest of the euro area, so that foreign trade is contributing to the expansion".

For 2016, the institutes predicted 1.8 percent growth in Germany's gross domestic product (GDP), as the positive effects of low energy prices gradually wear off.

The report comes ahead of the government's official forecast to be released next Wednesday by Vice Chancellor and Economy Minister Sigmar Gabriel, which is also expected to be higher.

The German government had in January predicted 1.5 percent GDP growth for the year, after 1.6 percent in 2014.

The more upbeat forecast comes after the European Central Bank this year launched a massive 1.1-trillion-euro bond buying programme to stimulate the eurozone economy, and as the euro common currency has fallen, making exports more competitive.

The German economic research institutes in their report also predicted that the unemployment rate, already among Europe's lowest, will drop to 6.3 percent in 2015, from 6.7 percent last year, and decline further next year to 5.9 percent.

The researchers expect currently low consumer price inflation to rise only slightly to 0.5 percent this year and to 1.3 percent next year.

The current account surplus of the European export power will continue to rise to a new record €256 billion, or 8.5 percent of annual economic output, they predicted.

In 2014 the surplus was nearly €220 billion, or 7.6 percent of GDP. Next year, the institutes predicted, it will rise to €266 billion or 8.5 percent of output.

The institutes also forecast healthy government finances, with a public surplus of €21 billion this year, up from €18 billion in 2014.
Next year, the public surplus is projected to increase to nearly €26 billion, they said.

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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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