Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
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.