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ECONOMY

Economic growth fails to match hopes

The German economy grew by 0.3 percent in the first quarter of 2015, slightly slower than expected, data published by the federal statistics office Destatis showed on Wednesday.

Economic growth fails to match hopes
Photo: DPA

Gross domestic product (GDP) expanded by 0.3 percent in price, calendar and seasonally adjusted terms in the period from January to March compared with the preceding three months, Destatis said in a statement.

Analysts had been pencilling in first-quarter growth of 0.5 percent after GDP expanded by 0.7 percent in the fourth quarter of 2014.

“The German economy continued on its growth path, but at a slightly slower momentum” in the first quarter, Destatis said.

The main growth driver was domestic demand, with both private households and the public sector increasing spending.

Investment also increased, particularly in construction and equipment.

Exports also increased slightly and imports rose more strongly.

On a 12-month comparison, GDP grew by 1.1 percent in the January-March period compared with the same three months a year earlier, Destatis said.

The statistics office said it would publish a more detail breakdown of the different GDP components on May 22.

Meanwhile, inflation crept higher in April with consumer prices rising by 0.5 percent year-on-year, final data showed.

The previous month, the consumer price index had risen by 0.3 percent on a 12-month basis, Destatis said.

The final data represent a fractional upward revision from the 0.4 percent originally reported at the end of April.

Using the Harmonised Index of Consumer Prices (HICP) — the yardstick used by the European Central Bank — inflation in Germany rose by 0.3 percent percent year-on-year in April, still way under the ECB's annual inflation target of just below two percent.

The data nevertheless appear to confirm that the ECB's monetary policy measures are slowly beginning to push up inflation.

In March, the ECB embarked on a massive trillion euro bond purchase programme to ward off deflation and end stagnation in the eurozone economy.  

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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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