Economic Development in March-April 2012
Economic Development in March-April 2012
Economic development:
· While, according to the Ifo Institute for Economic Research, both business climate and business expectations continue to improve for Germany the EU has had to revise downward its GDP forecast for the eurozone, expecting a slight recession in eight eurozone countries. The forecast for Germany is now at +0.6% (last forecast in November: +0.8%). EU Monetary Commissioner Rehn has once again demanded a substantial expansion of the bailout fund ESM.
· Thanks to last year’s 3% growth, the budget deficit has decreased to 25bn euros, 1bn less than expected, decreasing the deficit to 1.0% of the German GDP. New indebtedness was EUR 27bn (2010: 106bn). Thanks to the continually increasing number of people in gainful employment, the social security insurances have made the highest profits since reunification (EUR 15bn).
· A report commissioned by the Federal Chancellery but never published since it was submitted more than a year ago concludes that Germany’s eastern states will never reach the standards of the western states, subsidies specifically for the East should be discontinued and replaced by subsidies for regions in need of development, regardless of their geographic location.
· After a continued increase of the Ifo business climate indicator, an early indicator for economic growth, there is some hope that after a 0.2% decrease in the German GDP in fall, there will be no further decrease now or, in the worst case, a “mini recession”. Economic experts at the European Commission expect the economic development in the eurozone to continue to diverge, with the Southern European countries facing marked recession while France and Germany are doing comparably well, with an expected growth of 0.6 and 0.4% respectively.
· Unemployment has slightly increased in February to 3.1 million (7.4%), but only due to the cold spell of the first half of the month. This rate is the lowest unemployment rate in a February in 21 years. Year-over-year, the number of unemployed decreased by 203.000.
· The increase in the oil price (16% since early 2012) has contributed some 0.4 percentage points to the inflation rate. Oil price increases in earlier years had more of an effect on the economy, however. Thanks to increased energy efficiency, Germany now depends less on oil imports, importing roughly the same amount of oil as in the 1970s.
· VW has announced that it will pay out a profit bonus of EUR 7,500 to each pay scale employee this year, the highest bonus the company has ever been able to pay them. Other carmakers plan to pay out bonuses as well, but also chemical companies BASF and Bayer.
· The Federal Statistical Office reports that the inflation rate for February has gone up to 2.3%, up 0.7% on January. Exports have increased more than expected; seasonally adjusted by 2.3% (expectations were 2%). Exports to non-EU countries went up three times as much as exports within the EU.
Resignation of President Wulff: the Left party intends to nominate a rival candidate to run against Joachim Gauck, but has difficulties agreeing on whom they should nominate. The party is opposed to Gauck, former Federal Commissioner for the Stasi Archives, described in his own Stasi file as “incorrigible anti-communist”. The debate on whether Wulff should be granted a presidential honorarium continues. All presidents are eligible for a lifelong honorarium of EUR 199,000, plus offices, car, driver and staff, when they end their presidency or resign for political or health reasons.
Privacy: the Federal Constitutional Court has ruled that police investigators must obtain a court order if they want to obtain information on IP addresses or utilize email passwords and cell phone PINs to search seized accounts or devices. Government is called on to amend the respective legislation by June 2013.
G20 meeting in Mexico: the US, Japan, Canada and Britain demand that the eurozone countries expand their bailout fund ESM. Bundesbank President Jens Weidmann has defended Germany from allegations that it was not doing enough for its euro partners pointing out that –subject to Bundestag approval – it had promised another 41.5bn euros to the IMF.
Federal budget: Bundesbank President Weidmann has announced that the profit turned over to the federal government will be considerably smaller this year than in 2011 due to the risk provisions linked to the euro zone crisis. Says the risks in the central banks’ balance sheets have markedly increased with regard not only to Greek bonds but also to all the extraordinary monetary measures related to the crisis.
Debt crisis: according to a study performed by Ernst&Young Consultants, German bank managers currently concentrate more on risk management and cost reduction than on looking for new fields of business. One in four companies plans to cut jobs, especially in the back offices and IT departments.
Strikes at German airports: the strike on Frankfurt Airport escalates; even if a court has issued an injunction against the expansion of the ground workers’ strike by an air traffic controllers’ solidarity strike, there is currently little chance that agreement will be reached soon.
EU Interior Ministers’ Conference: several EU member states, including Germany, have demanded that Greece improve border controls on the border to Turkey, which is a preferred place for illegal immigrants to enter the EU. Most of these immigrants travel on or are passed on to other European countries. The EU Commission stresses that all EU countries need to help Greece with the migration problem.
International Women’s Day: BMW CEO Reithofer has announced that Milagros Caiña-Andree will be the first woman in the Board of Management of the BMW Group. BMW major shareholder (Ms) Susanne Klatten repeatedly demanded that the share of women in leadership positions should increase. Problems are on the one hand that the car business is dominated by male networks; on the other hand, there are too few women engineers.
Pensions: Cabinet is to approve a 2. 2% increase in pensions this week. The increase is more than in the past two years (2010: 0%, 2011: 0.99%), but not enough to make up for a 2.3% inflation rate. Pensions are linked to the development of average gross wages in the preceding year. Originally, a significantly higher increase had been anticipated, but the average gross wages were unexpectedly found to have increased by only about 2.6% (the forecast in fall was 3.2%).
Euro crisis:
· Chancellor Merkel is considering agreeing to a 12-month merger of the temporary and the permanent bailout funds EFSF and ESM to raise the ESM’s lending capacity to EUR 750bn.
· The European Finance Ministers have approved the payout of EUR 35.5bn as a first tranche of the second bailout package. The payout of another EUR 94.5bn is to be decided in the coming weeks. Since the Greek government plans to activate provisions enabling it to force investors to join the debt cut, the International Swaps and Derivatives Association (ISDA) has ruled that a ‘credit event’ has taken place, meaning it will trigger payouts on bond insurance. The credit rating agency Fitch has cut Greece to “restricted default”.
SPD Parliamentary Group Chairman Steinmeier has demanded that the European fiscal pact should be expanded to include measures to stimulate growth in the countries in crisis; has defined the SPD’s conditions for the approval of the pact, such as making available funds to fight youth unemployment in the countries in crisis and the introduction of a financial transaction tax.
…………………………………….
Office of Labour Affairs, Royal Thai Embassy, Berlin
April 2012
