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ECONOMY

Business confidence slack as growth slows

German business confidence slipped fractionally from its previous high level in May, as the upturn in Europe's biggest economy continues, the Ifo economic institute said Friday.

Published: 22 May 2015 11:14 CEST
Business confidence slack as growth slows
A worker puts the finishing touches to BMWs at the car producer's Regensburg, Bavaria production line. Photo: DPA

The Ifo institute's closely watched business climate index eased slightly to 108.5 points this month from 108.6 points in April, the think tank said in a statement.

It was the first time since September that the index has fallen and analysts had been expecting a slightly bigger drop.

But Ifo president Hans-Werner Sinn insisted that the development was no cause for concern.

“Companies were once again more satisfied with their current business situation, but expressed slightly less optimism about the months ahead. The German economy remains on track,” he said.

Ifo calculates its headline index on the basis of companies' assessments of the current business environment and the outlook for the next six months.

The sub-index measuring current business rose to 114.3 points, the highest level since June 2014, while the outlook sub-index slipped by 0.4 point to 103.0 points, the institute said.

Some of the slip in confidence may have been due to a slowdown in GDP growth.

Figures from the federal statistics office Destatis showed on Friday that gross domestic product (GDP) expanded by 0.3 percent in price, calendar and seasonally adjusted terms in the first quarter, slower than the 0.7 percent seen in the preceding three months.

The data confirmed a preliminary estimate published last week.

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

The main growth driver was domestic demand, with both private household spending rising by 0.6 percent and public-sector spending by 0.7 percent.

Investment also increased, particularly in construction, where it rose by 1.7 percent, and equipment, where it grew by 1.5 percent.

Exports increased as well, expanding by 0.8 percent. But because imports rose almost twice as fast (1.5 percent), the overall net effect from foreign trade was negative, shaving 0.2 percentage points off growth, Destatis said.

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.

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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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