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ECONOMY

German economy growing even faster than predicted

The German economy grew at a faster pace than expected in the third quarter, official data showed Tuesday, as robust foreign demand kept Europe's top economy humming.

German economy growing even faster than predicted
Photo: DPA

Gross domestic product (GDP) expanded by 0.8 percent between July and September compared with the previous quarter, adjusted for seasonal swings, the statistics office Destatis said in a statement.

“German economic growth continues at a high rate,” it said.

The preliminary figure beat expectations, as analysts surveyed by Factset had forecast 0.6 percent growth.

“Exports were stronger than imports in the third quarter. As a result, net exports had a positive impact on the GDP compared to the previous quarter,” according to Destatis.

Healthy government and consumer spending “remained rather stable” in the third quarter, it added, while noting that investments had increased, particularly “in machinery and equipment”.

Destatis also revised upwards its first-quarter figure, saying the German economy accelerated by 0.9 percent in the first three months of 2017 instead of the earlier reported 0.7 percent.

Second-quarter growth was confirmed at 0.6 percent.

“Germany's economic success story goes on and on and on,” said economist Carsten Brzeski of ING Diba bank.

He said he saw little reason to expect a sudden end to the country's “golden cycle”, given the low interest rate environment, the strong labour market and the expectation that the incoming German government would boost spending.

The German economy ministry last month sharply upgraded its full-year growth forecast to 2.0 percent, up from 1.5 percent previously.

For 2018, it is pencilling in growth of 1.9 percent.

Europe's largest economy has in recent years been powered by domestic demand, helped by record-low unemployment, low inflation and an influx of migrants in 2015.

But the economy ministry expects domestic consumption to slow down in coming years, while buoyant foreign demand for “made in Germany” goods is once again expected to become the main driver of growth.

Exports are forecast to rise by 3.5 percent this year and 4.0 percent in 2018, according to the ministry.

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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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