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ECONOMY

Brexit and an aging population said to shade German economy

Germany's "wise men" council of economic experts on Wednesday sharply lowered its economic outlook as Europe's powerhouse battles headwinds from trade conflicts, Brexit uncertainty and an ageing population.

Brexit and an aging population said to shade German economy
A famous sculpture of the euro in Frankfurt am Main. Photo: DPA

The experts, who advise the government on economic policy, said they expected Germany's economy to grow by 1.6 percent this year and 1.5 in 2019.

That was well below their previous forecast of 2.3 percent and 1.8 percent respectively.

“The uncertain future of the global economic order and unavoidable demographic change represent major challenges to the German economy,” said chairman Christoph Schmidt in the council's latest annual report.

The so-called “wise men”, actually four men and one woman, urged Chancellor Angela Merkel's government to take action to prepare Germany for the threats ahead.

The warning comes as Germany braces for a period of political turbulence at home following Merkel's announcement that she will step down as head of her centre-right CDU in December and will not seek re-election as chancellor when her fourth term ends in 2021.

Brexit and baby-boomers

The German economy enjoyed stellar growth in 2017 underpinned by brisk domestic and international demand, record-low unemployment and low interest rates.

But Europe's top economy has hit a soft patch this year against a backdrop of slower global growth. The German economy ministry last month lowered its growth estimates and is now pencilling in expansion of 1.8 percent this year and the next.

Clouding the outlook is concern about US President Donald Trump's aggressive “America First” trade agenda which has seen him lock horns with China and the European Union, unsettling Germany's export-reliant companies.

Other outside risks stem from an increased chance of a no-deal Brexit when Britain quits the bloc in March, which could badly disrupt trade, and rising euroscepticism in countries like Italy, the “wise men” said.

“An escalation of the trade conflict, a disorderly Brexit, or a resurgence of the euro area crisis harbour risks for economic development,” they warned.

They urged Germany and the European Union to forcefully reject protectionism and stand up for free trade.

Domestically, the experts singled out Germany's ageing workforce as a “major challenge”.

German companies are already grappling with a shortage of skilled workers as the baby-boomer generation retires, and the problem is expected to worsen in the years ahead.

To get more people into the workforce, especially women, the experts urged Berlin to encourage flexible working hours and improve childcare options.

Immigrants could likewise help plug the gap, they added, while also advocating a gradual rise in retirement age.

The experts pressed Berlin to make greater strides in preparing Germany for the digital economy, urging investments to improve the country's creaking internet infrastructure.

Berlin should also do more to support tech start-ups and modernize its education system to prepare youngsters for the “digital transformation”, they added.

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ECONOMY

‘Tougher times’: Sweden’s economy to slow next year

Consumers in Sweden are set to crimp spending over the rest of the year, pushing the country into an economic slowdown, Sweden's official economic forecaster has warned in its latest prognosis.

'Tougher times': Sweden's economy to slow next year

A combination of record high energy prices over the winter, rising interest rates, and inflation at around 10 percent, is set to hit household spending power over the autumn and winter, leading to lower sales for businesses and dragging economic growth down to just 0.5 percent next year. This is down from the 1.2 percent the institute had forecast for 2023 in its spring forecast. 

“I don’t want to be alarmist,” Ylva Hedén Westerdahl, forecasting head at the Swedish National Institute of Economic Research, said at a press conference announcing the new forecast. “We don’t expect the sort of economic slowdown that we saw during the financial crisis or the pandemic, where unemployment rose much more. But having said that, people who don’t have a job will find it tougher to enter the labour market.” 

She said that a shortage of gas in Europe over the winter, will push electricity prices in Sweden to twice the levels seen last winter, while the core interest rate set by Sweden’s Riksbank is set to rise to two percent. 

As a result, Sweden’s unemployment rate will rise slightly to 7.8 percent next year, from 7.7 percent in 2022, which is 0.3 percentage points higher than the institute had previously forecast. 

On the plus side, Westerdahl said that she expected the Riksbank’s increases in interest rates this year and next year would succeed in getting inflation rates in Sweden under control. 

“We expect a steep decline in inflation which is going to return to below two percent by the end of 2023,” she said. “That depends on whether electricity prices fall after the winter, but even other prices are not going to rise as quickly.” 

After the press conference, Sweden’s finance minister, Mikael Damberg, said he broadly agreed with the prognosis. 

“I’ve said previously that we are on the way into tougher times, and that is what the institute confirms,” he told Sweden’s state broadcaster SVT. “There’s somewhat higher growth this year, at the same time as fairly high inflation which will hit many households and make it tougher to live.”

Damberg called on Sweden’s political parties to avoid making high-spending promises in the election campaign, warning that these risked driving up inflation. 

“What’s important in this situation is that we don’t get irresponsible when it comes to economic policy,” he said. “Because when parties make promises left, right and centre, it risks driving up inflation and interest rates even more, so Swedish households have an even tougher time. Right now, it’s important to prioritise.” 

 The call 

Sverige är på väg mot lågkonjunktur enligt Konjunkturinstitutets (KI) senaste prognos. Enligt finansminster Mikael Damberg (S) är det därför viktigt att Sverige sköter sin ekonomi ansvarsfullt och vågar prioritera.

– Jag tror att alla partier behöver vara lite återhållsamma och inte lova för mycket, säger han.

Mikael Damberg tycker att KI tecknar en realistisk bild av Sveriges ekonomiska verklighet.

– Jag har sagt tidigare att vi går mot tuffare tider och det är väl det som KI bekräftar. Något högre tillväxt i år men sämre tillväxtförutsättningar nästa år samt fortsatt ganska hög inflation som slår mot många hushåll och gör det tuffare att leva, säger han.

Och vad vill regeringen göra åt det?

– Det är viktigt att vi i det här läget inte är ansvarslösa i den ekonomiska politiken. För när partier lovar vitt och brett till allt riskerar vi att driva upp inflationen, öka räntan ytterligare och svenska hushåll får det svårare. Nu måste man våga prioritera.

Se intervjun med Damberg om konjunkturläget klippet ovan.

“Electricity prices are going to be twice as high as last winter,” said 

Elpriserna kommer att bli dubbelt så höga som förra vintern, säger Ylva Hedén Westerdahl, chef för Konjunkturinstitutets prognosavdelning, på en pressträff.
Den lågkonjunktur som KI ser framför sig kallar hon trots det för en mjuklandning. Den handlar främst om att människor kommer att ha mindre pengar att konsumera.

“Brist på gas i Europa gör att energipriserna ser ut att bli rekordhöga under vintern”, skriver KI, och ser att inflationen kommer att närma sig 10 procent.

Deras prognos för styrräntan är att den ligger på 2 procent vid årsslutet, vilket gör att inflationen faller tillbaka snabbt under nästa år och Riksbanken låter då räntan ligga still.

KI tillägger att de offentliga finanserna är fortsatt starka och de bedömer att det finns ett budgetutrymme på runt 120 miljarder kronor för de kommande fyra åren.

Vad gäller BNP spår KI en blygsam tillväxt på 0,5 procent nästa år – en nedskrivning från tidigare 1,2 procent.

Prognosen för arbetslösheten under 2023 är 7,8 procent, 0,3 procentenheter högre än tidigare prognos.

Fredrik Fahlman/TT
Johanna Ekström/TT

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