Economic Development in April 2012
Economic Development in April 2012
Economic development:
· forecasts for the economic development in Germany are getting a little more confident, now that there is hope that the euro crisis could come to an end. The Kiel Institute for the World Economy expects 0.7% growth for this year and 1.9% for 2013 now, the Halle Institute for Economic Research even predicts 1.3% and 2.2% respectively. The unemployment rate is expected to decrease to 6.6% this year and 6.1% in 2013, provided the crisis is kept under control.
· the German Institute for Economic Research has raised its GDP forecast for 2012 from 0.6% to 1%; expects 2.4% growth in 2013. Unemployment rate estimated at 7.0% this year and 6.7% in 2013. It seems the technical recession that was expected this winter did not materialize. The Ministry of Economics reports that orders have increased again in February after they decreased by 1.8% in January.
Euro crisis:
· Germany is under pressure from the European Commission and the USA, but also from emerging countries like China and Brazil, to increase its guarantees from EUR 211bn to EUR 280bn, almost the amount of the 2012 German budget. Chancellor Merkel and Finance Minister Schäuble are strictly opposed to the further increase and do not even consider it necessary, but seem to be in the minority.
· Chancellor Merkel has traveled to the Czech Republic, was assured by Czech Prime Minister Necas that while his government did sign up for the pact, it would still meet its conditions. Merkel stressed that her government would not put any pressure on the Czech Republic.
The EU/IMF/ECB troika reports that Portugal has fully complied with the bailout conditions, but that the economy contracted by 3.3%, 0.3 points more than expected, the unemployment rate increased by 14.4% and not 13.8% as anticipated and consumer trust and business confidence was rock bottom. Greek economy continues to contract as well; unemployment rate at 21%.
Production offshoring: the Fraunhofer Institute for Systems and Innovation Research has found that production offshoring has decreased to a 15-year low; and increasingly, German companies relocate their production back from China to the EU as wage differences decrease, while shipping time and costs remain considerable. There seems to be a tendency to produce goods in China only for the – highly attractive – regional markets, but no longer for exports to the EU.
China: the growth in the Chinese car market seems to slow down; German carmakers have started offering discounts of 20% or more on their cars. China is the biggest market for VW, and the third- largest for BMW and Mercedes. Sales had soared in 2009 and 2010 during the economic crisis, when the government had introduced consumer spending incentives; the programs expired in 2011.
Leave of absence: the Federal Labor Court has ruled that it is not lawful that in civil service older staff is entitled, without any reason provided, to more leave of absence than younger; therefore all civil servants must be equally entitled to 30 days of leave of absence per year.
Old-age poverty: Labor Minister von der Leyen (FDP) has presented a number of ideas on how to prevent old-age poverty. Wants to grant pension subsidies to people with low pensions and oblige self-employed people – who tend to neglect old-age provision – to get some form of a retirement provision. People who have to retire early for reasons of health are to receive the pension they would have received if they had worked until age 60, with the level of payments based on the highest salary the person earned in a period of 15 years before early retirement.
Immigration: the Federal Employment Agency reports that in 2011 the number of foreign immigrants from EU countries has increased by 156,000 (a 15-year record), while the number of non-EU immigrants only increased by 21,400. Immigrants from EU countries are mostly from countries where freedom of movement within the EU was introduced last year, i.e. the Eastern European countries. The immigration is not for purposes of obtaining welfare benefits not available at home but in search for work.
Night flight ban: the Federal Administrational Court in Leipzig has confirmed a ban on night flights at Frankfurt airport between 11 p.m. and 5 a.m. While residents are relieved logistics companies fear that this might to financial losses and job cuts in the region.
Solar industry:
· another manufacturer of solar panels in Germany has had to file for insolvency. Manufacturers have called for punitive duties on Chinese solar panels which are highly subsidized while subsidies in Germany are being reduced. The USA has already introduced punitive duties and considers increasing them.
· a fourth German solar company, Q-Cells, has filed for bankruptcy. Again, the main reason is the competition from China.
· after what used to be Germany’s biggest solar company, Q-Cells, filed for insolvency this week, the share price of another solar company, Phoenix Solar, slumped by more than 30% to below 1 euro. Several other companies are in trouble, one filed for insolvency after government announced that it would cut subsidies for large-scale solar power plants.
Solar subsidies: plans for solar subsidy cuts are to be watered down after the federal states have voiced protest against the cuts.
Office of Labour Affairs, Royal Thai Embassy, Berlin
April 2012
