Economic Development in May 2012
Economic development:
Economic Development in May 2012
Economic development:
· the Ministry of Economics reports that the economic situation in Germany is improving again after a period of contraction in the winter months. Indicators both for business sentiment and expectations are going up. International trade has increased, too; imports increased by 2.4%, exports by 2.3%. Unemployment decreased again, seasonally adjusted by 18,000 people.
· the IMF has revised upwards its forecast for GDP growth in Germany, now expects 0.6%, twice the growth it expected before. Still expects a mild recession in the eurozone, but here, too, the economy is expected to contract less than expected (-0.3%). The ZEW Indicator of Economic Sentiment for Germany has increased as well, for the fifth consecutive month.
· the Markit Purchasing Managers’ Index for Europe has unexpectedly dropped to a five-month low. According to Markit, too, private sector growth stagnates in Germany, and employment levels dropped in April for the first time since early 2010. Other institutes are more optimistic: the Cologne Institute for Economic Research expects 1.25% growth this year, 2% in 2013, and a reduction of the unemployment rate to 6.25%; government expects 0.7% growth.
· Minister of Economics Rösler has presented the government’s spring forecast: after the slow-down during the winter months, economic growth is now speeding up again, the Ministry expects 0.7% growth this year and 1.6% in 2013. The main factor for this growth is domestic economic growth, especially the continued increase in employment (unemployment rate expected at 6.7% this year and 6.5% in 2013. Exports are expected to increase less this year than in the past years, but improve again next year. Imports will increase more than exports in both years, which would be helpful for the trade partners.
· the number of unemployed in Germany has dropped below the 3 million mark again in April (2.96million, 7.0%). The number of underemployed decreased as well, to 3.95million (-347,000 year-on-year). Seasonally adjusted, however, the number of unemployed has increased by 19,000 within one year. As for new jobs, a total of 174,000 have been created in April, 11% less than one year ago.
In the eurozone as a total, a record 17.4million people are reported unemployed, almost 11%; in Spain, one in four people is unemployed, in Greece one in five.
· the FAZ economic development indicator has gone up slightly in March, thanks mainly to 2.2% more orders in the industry. According to the Ministry of Economics, production has increased as well, by 2.8% after an earlier decrease due to the problems the cold weather caused to the construction industry.
Euro crisis:
· the crisis is back with interest rates on Spanish bonds have doubled within a month; increased to 5.9%, on Italian bonds to 5%, even though both countries work hard on austerity measures. International experts criticize precisely the strict austerity policy and the fiscal pact promoted by Germany, saying this was only speeding up the downswing.
· housing prices are soaring in Germany as people no longer trust banks or bonds. Experts fear a housing bubble.
· the European Central Bank and the Eurogroup are working on an initiative to enable troubled banks to tap the bailout fund ESM. Germany is strictly opposed to this; it would violate the EU Treaty.
· there are calls among euro countries that the lending capacities of European Investment Bank should be bolstered to spur investment and growth. Several governments are demanding an EU growth pact to prevent the general austerity efforts from further increasing unemployment. Chancellor Merkel would be willing to support such a pact if it did not thwart budget consolidation. Suggests that the labor markets should be opened further to remove barriers for the employment of young people and European Union structural funds be used more flexibly and purposefully.
Net salaries: taxes and contributions on gross salaries have increased 6% over last year; the highest increase since the mid 1990s so that despite wage increases real incomes have decreased. Social security insurances have made almost 14bn euros in profits, thanks both to more contributions and less expenditures, especially on unemployment benefits.
Greece: the emerging countries oppose the expansion of IMF financial support for the Greece bailout.
Solar industry: the crisis in the German solar industry is developing into a structural crisis for Eastern Germany. The American company First Solar has announced that it will shut down its plant in Frankfurt/Oder this fall, which means a loss of 1,200 jobs in a structurally weak region. First Solar was one of the major industrial entrepreneurs in Brandenburg. Says the company was not prepared for the 30% cut on solar subsidies the federal government introduced in April.
Border controls: the call by the German and French Interior Ministers for the reintroduction of border controls has sparked sharp criticism from the German government, especially Foreign Minister Westerwelle (FDP).
Cross-border crime: the Interior Ministers of Poland and Germany have met in Frankfurt/Oder to mark the start of a new cooperation between the two countries. In a pilot project running for one year, German Federal Police and Polish border police are to participate in training sessions with each other and work the same beats together. Property crime has increased up to 42% in Brandenburg and Berlin since Poland was added to the Schengen zone in 2007.
Lufthansa: the German carrier Deutsche Lufthansa AG has announced a number of measures to restructure the company, including salary cuts, no more new planes and no first class on a many long-distance connections. the German carrier faced with fierce competition from budget airlines and state-owned airlines from the Gulf region and with continually rising fuel costs, plans to economize by cutting 3,500 administrative jobs worldwide and 2,500 in Germany over the coming years.
Job cuts: mail order company Neckermann has announced that it is going to move its business entirely online and discontinue sending out catalogues. The move includes closing its logistics center and 1400 of 2000 jobs cut at the company’s headquarters in Frankfurt/Main by the end of the year. The company used to belong to the Arcandor group, which went bankrupt in 2008, and was sold to American investor Sun Capital. It had been in the red for a number of years, in 2010 things had improved, but deteriorated again in the second half of 2011.
Blue Card: Bundestag has approved, with coalition votes only, the introduction of a Blue Card, implementing an EU directive created in 2009 that aims to attract highly qualified non-EU nationals by simplifying entry procedures and residence rights. SPD and Greens abstained, fearing that the required annual salary of just below 35,000 euros was too low even for engineers, physicists and mathematicians at the beginning of their careers; this was a form of wage dumping. The Left Party opposed the bill.
Minimum wage: the FDP has rejected Chancellor Merkel’s plan to discuss the Union’s ideas about lower limits for wages in the next coalition committee session, pointing out that the coalition contract did not include any agreement on the introduction of a minimum wage.
Car sales: the German luxury car manufacturers report increasing orders now, with BMW being more profitable than Audi and Daimler. Opel on the other hand, not represented on the booming markets in China and Latin America and depending much on export to Southern Europe, continues to suffer losses.
Forced labor in the GDR: allegedly, not only furniture sold by the Swedish company IKEA was produced in forced labor by political prisoners in the GDR but also other goods sold by West German companies. The companies in question confirm that they worked with East German companies but had no knowledge of the goods being produced in forced labor, nor do they have any means of finding out now.
Wage negotiations: Finance Minister Schäuble has supported the trade unions in their calls for wage increases. Says Germany, after a number of years of reform, was now able to afford higher pay agreements, but should make sure that it did not overdo it.
May 1 demonstration in Berlin: several aluminum tubes found on the route of the May 1 demonstration in Berlin and originally considered fairly innocuous firecrackers have been found to be highly dangerous pipe bombs. In 2010, extreme right-wing activists had brought explosive devices filled with broken glass to the May 1 demonstration.
Postponed opening of Berlin-Brandenburg International Airport: the opening of the new airport (BER) has been postponed indefinitely due to unresolved concerns over fire safety arrangements. the postponement is causing major havoc. Green Party Chairman Jürgen Trittin has called on Berlin Mayor Klaus Wowereit (SPD) to assume the political responsibility this second postponement and resign. The two existing airports, Tegel and Schönefeld, which were set to close on June 2, the night before the new airport was to begin operations, now will remain open until it is ready, possibly in late August, which causes problems especially for Lufthansa and Air Berlin as they considerably expanded connections with Berlin at the new BER airport. It seems the problems and delays that now led to the postponement were known for months but the ones responsible insisted on June 3 as the opening date. The costs for the new airport meanwhile exceed 3bn euros, 25% more than anticipated. The postponement will cost some 15million euros per month.
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Office of Labour Affairs, Royal Thai Embassy, Berlin
May 2012
