Download PDF, ca. 50 KB

Ifo Economic Forecast 2011/2012:
Upswing Proceeds at a Slower Pace
Press release
Embargo:
Wednesday, 29 June 2011, 14.15 hrs CEST
Munich, 29 June 2011
Ifo Economic Forecast 2010/2011: Upswing Proceeds at a Slower Pace
In Germany the economic upswing continued at high speed in the last winter half
year. The massive decline in output during the financial and economic crisis has
now been recouped. Current leading indicators point to a continuation of the
upswing, but at a slower pace. GDP in 2011 will increase by 3.3% - at a 67%
confidence level by between 2.7% and 3.9% The number of unemployed will fall
by nearly 300,000. In the coming year, economic activity in Germany should retain
the pace it will have at the end of 2011 and will thus clearly point upwards.
The world economy started the current year with considerable force, but in the second
quarter global economic activity seems to have weakened. The Ifo World Economic
Climate indicator has continued to rise, but only slightly and with considerable
differences between countries and regions. Whereas despite some weakening since the
second quarter of 2010 the expansion is still strong in the emerging economies, the
advanced economies are displaying slower growth and most of them are undergoing a
somewhat sluggish recovery.
Since spring 2011 the world economy has been influenced by two special factors - the
earthquake and nuclear disaster in Japan as well as the political revolutions in Northern
Africa and the Middle East. The natural catastrophe in Japan destroyed much of the
public and private capital stock in the affected regions and has caused considerable
production losses. This led to a sharp drop in Japan’s economic output in the first
quarter. At the same time, the impact on economic activity in the rest of the world
should be limited and only of a short duration. The unrest in the Arab world is
significant in an economic sense in that it could have a negative effect on the supply of
the world economy with mineral oil.
In the forecast period the world economic recovery will continue, but is expected to lose
some of its speed. In the newly industrialising countries, economic policy will become
more restrictive in order to reduce inflationary pressure as well as the danger of
overheating. In the industrialised countries the necessary consolidation efforts of the
private and public sector will slow down the economic expansion. This is especially the
case for the countries of the European periphery. On the whole, the economic dynamics
in the emerging economies will be much stronger than in the industrialised countries.
World economic output is likely to grow by 4.2% in both this and in the coming year.
1
In the euro area the economic recovery will continue at a moderate pace. In spite of
savings measures in the public sector, the pace of economic expansion should speed up
slightly during the coming year. Domestic demand will probably be the main factor
behind this. Private-sector investments will profit from advantageous refinancing
conditions, a favourable profit situation and increasing capacity utilisation, while the
increasing growing of the labour market situation will lead to a recovery in privatesector consumption in several core countries of the monetary union. All in all, it can be
expected that GDP in the euro area will increase by 2.1% in 2011 and by 1.8% in 2012.
However, the differences between the individual countries of the euro area will be
considerable.
In Germany the upswing continued in the last winter half year at a strong pace. Total
economic output grew in this period by a seasonally adjusted 1.9%. Although economic
output in the fourth quarter of 2010 expanded by only 0.4%, this was primarily the
result of an unusually cold and snowy winter. After the turn of the year, the weatherinduced setbacks, especially in construction and transportation, were fully recouped.
The sharp decline in economic output as a result of the recent financial and economic
crisis has now been made up for. The Ifo Business Climate indicator has surpassed even
the peak levels of boom years 2006/07 for more than three-quarters of a year. Capacity
utilisation in the manufacturing core, at 86%, is clearly above its long-term average.
As a result of the strong economy, the increase in prices has accelerated noticeably:
consumer prices in June, on average, were 2.3% higher than a year before. Although the
price increase was largely due to rising raw material prices, core inflation has also
increased gradually in recent months by 1.6% - according to the calculation method of
the Ifo Institute – having only amounted to 0.7%, on average, in the previous year.
Growth in economic output in the second quarter of 2011 was probably markedly
slower than in the first quarter. For the second half year of 2011, the Ifo business
expectations indicate that the strong average growth dynamics since the beginning of
2010 will not be completely maintained. The positive cyclical tendency will continue,
however, supported by still very favourable financing conditions, growing employment
and strong external demand. Overall, GDP will increase by 3.3% in 2011, at a 67%
confidence level by between 2.7% to 3.9%.
In the coming year, economic activity should retain the pace it will have at the end of
2011 and will thus clearly point upwards. True, it is likely that the European Central
2
Bank (ECB) will raise its rates slightly and the world economy - weighted with the
German export share – will slow marginally, with the result that investment growth will
normalise somewhat during the course of the year. However, private consumption,
boosted by increasing wages and growing job security, will gradually pick up. Overall,
real GDP will expand by 2.3%.
With all these factors, growth in employment will continue; on average for 2011, an
increase of 490,000 employed people is expected. In the coming year, employment
should increase by 315,000. Due to a growing labour supply, the number of unemployed
people will not decrease in the same proportions. In 2011 a reduction of 295,000 and in
2012 of 260,000 is expected.
The continuing increase in the output gap will gradually drive up core inflation.
However, since the forecast assumes that raw material prices will remain constant and
will thus no longer contribute to inflation in 2012, the result for consumer prices is an
increase of 2.4% in the current year and only 2.1% next year.
As a result of the strong economy and the consolidation efforts, the total budget deficit
will decline from 82 billion euros last year to 38 billion euros this year. For 2012 a
nearly balanced budget is expected. In relation to GDP, the deficit in 2011 will amount
to 1.5%, and in the coming year to a likely 0.2%
A key risk for the forecast is the ongoing sovereign debt crisis in the periphery of the
euro area. A far worse economic situation than expected or strong political headwinds in
the affected countries could lead to falling considerably short of the savings targets.
This could shake confidence in the appropriateness of the targeted consolidation
measures as well as in the adequacy of the already approved aid packages. As a result it
could lead to a further strong increase in the uncertainty on the European bond markets
and thus to further strains on the banking systems in many countries of the euro area. A
particular danger is that this uncertainty will spread to the larger members of the
monetary union such as Spain, Belgium or even Italy, with the associated, considerable
losses in equity capital for the banking sector in the euro area. The already decided
rescue packages may no longer suffice in covering the solvency and financing
requirements of all affected countries should larger member states such as Spain or Italy
also need to request financial help from the European community of states and the
International Monetary Fund. A possible failure of a further bolstering of the rescue
packages due to strong political resistance in the core countries of the euro areas could
necessitate a disorderly restructuring of public debt in one or more of the crisis
3
countries. If this were to happen, a renewed slip into recession of the European
Monetary Union could not be ruled out due to the enormous burdens on the banking
system.
Immense fiscal risks exist for Germany. Should it become clear that the countries that
have hitherto been supported by the rescue packages cannot economically shoulder the
burden of their debts in the longer term, or should these countries threaten to slip into
political chaos, a partial debt restructuring for public-sector creditors is to be expected.
For Greece in particular, this scenario cannot be ruled out. Since in the meantime large
portions of the Greek national debt are held by the EU, the IMF and the ECB, and since
in addition the ECB has taken on considerable risks in its balance-sheet as part of its
refinancing transactions with European commercial banks, risks that are ultimately
backed up by the taxpayers, Germany’s sovereign debt could increase noticeably. This
could lead to higher risk premiums for German government bonds and thus increase the
financing costs of public-sector debtors in Germany. Moreover, the reduction of the
national debt would require additional consolidation efforts that would slow down the
economic upswing.
4
Ifo Economic Forecast 29 June 2011
Federal Republic of Germany
Key Forecast Figures
2009
2010
2011
2012
(1)
(1)
a)
Percentage change over previous year
Private consumption
Government consumption
Gross fixed capital formation
Machinery and equipment,
Buildings
Other investment
Domestic demand
Exports of goods and services
Imports of goods and services
Gross domestic product (GDP)
-0,2
2,9
-10,1
-22,6
-1,5
5,6
-1,9
-14,3
-9,4
-4,7
0,5
1,9
6,0
10,9
2,8
6,4
2,4
14,7
13,0
3,6
1,6
2,1
7,8
14,9
3,1
6,7
2,1
9,1
6,9
3,3
1,3
1,2
5,0
8,8
2,1
6,5
2,2
6,6
6,9
2,3
Employmentb) (1.000 persons)
Unemployment (1.000 persons)
40271
3415
40490
3238
40980
2944
41295
2683
8,1
7,7
7,0
6,4
0,4
1,1
2,4
2,1
-72,7
-82,0
-37,8
-5,0
-3,0
-3,3
-1,5
-0,2
-4,2
1,7
2,0
1,8
0,3
1,6
2,7
1,7
Unemployment ratec) (in %)
d)
Consumer prices
(% change on the previous year)
General government financial balance
- EUR billion
- in % of GDP
e)
memo item:
Real GDP in the EMU
(% change on the previous year)
Consumer prices in the EMU
(% change on the previous year)
f)
1) Forecast of the Ifo Institute.
c) Federal Employment Agency concept.- d) Consumer price index (2005=100).e) On national accounts definition (ESA 1995).-f) Harmonized index of consumer prices (HICP, 2005=100).
Source: Eurostat, Federal Statistical Office, Federal Employment Agency, Forecast of the Ifo Institute.