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Industry: ‘doped’ growth boosting economy

The German Chambers of Commerce and Industry (DIHK) warned on Thursday that a fresh burst of economic confidence might be unfounded, even as they raised their growth projections for 2015.

Industry: 'doped' growth boosting economy
A man assembling food processors in a Wuppertal factory. Photo: DPA

Activity in the German economy should grow by 1.8 percent in 2015, rather than 1.3 percent as previously predicted, DIHK said.

But they argue that the improved figures were mostly due to one-off effects including low oil prices and interest rates and the weakness of the Euro against other currencies.

“This is a doped and borrowed upturn,” DIHK boss Martin Wannsleben said in Berlin.

The Euro's weakness against the US dollar has added around  one percent to growth by making German products cheaper outside the eurozone.

And cheap oil has boosted growth by an estimated 0.7 percent, while low interest rates have made life easier for the construction and housing sectors.

Wansleben said those effects were masking a lack of competitiveness in the German economy.

Current good times are being sustained by shopping-happy consumers, who feel increasingly secure thanks to the good economic news.

But there is a strong possibility that growth might fall back below 0.5 percent.

“For every peak, there's always a trough,” Wansleben said. “Then we'll be rubbing our eyes.”

He targeted the government for special criticism, saying that special measures such as the introduction of the minimum wage couldn't be repeated or Germany would tempt fewer foreign investors in the future.

An expected 250,000 more people employed this year over last year was “a bit disappointing,” DIHK chief economist Alexander Schumann said.

A DIHK survey of more than 23,000 companies showed that managers remain optimistic, with plans to invest more and hire more people.

Meanwhile, the Institute for Economic Research (DIW) released projections of 0.5 percent GDP growth in the second quarter of this year, an increase over the 0.3 percent gain between January and March.

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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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