German Economy Recovers Surprisingly Quickly from Last Year’s Recession
Wirtschaft im Wandel,
No. 9,
2010
Abstract
The German economy recovers surprisingly quickly from last year’s recession. For this year, we expect GDP to grow by 3.5%. Next year, when GDP growth should reach a rate of 2%, the general government deficit is likely to fall below the 3% mark of the Stability and Growth pact – if the government indeed realizes the stabilization program it decided on this summer. Unemployment will continue to decline.
We see three main causes for this favorable development: first, the German economy benefits strongly from the high growth dynamics in emerging markets, since German firms are well positioned for producing investment goods that are particularly sought-after in these countries. Second, growing demand for labor in Germany means that employment and labor income is on the rise. Partly, this is the reward for a long time of low wage rises that have made labor in Germany competitive again. Third, the expansive monetary policy in the euro area is particularly stimulating since here debt levels of private households and firms are moderate and therefore do not dampen the stimulating effects of low interest rates, as they do in many euro area partner countries with highly indebted private and public agents.
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Im Fokus: Polen in der globalen Finanz- und Konjunkturkrise – Realwirtschaft trotzt mit IWF-Unterstützung den Finanzmarktturbulenzen
Tobias Knedlik
Wirtschaft im Wandel,
No. 4,
2010
Abstract
Poland’s economy resists turbulences on financial markets
Poland has been affected by the global financial crisis. However, developments in Poland deviated considerably from developments in other middle and eastern European countries. Risk premiums, as measured by credit default swaps, increased by less but more suddenly as compared with other countries of the region. The Polish currency crisis started earlier and lasted longer as in other countries of the region. The developments on financial markets did, however, not result in a recession.
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Should We Trust in Leading Indicators? Evidence from the Recent Recession
Katja Drechsel, Rolf Scheufele
Abstract
The paper analyzes leading indicators for GDP and industrial production in Germany. We focus on the performance of single and pooled leading indicators during the pre-crisis and crisis period using various weighting schemes. Pairwise and joint significant tests are used to evaluate single indicator as well as forecast combination methods. In addition, we use an end-of-sample instability test to investigate the stability of forecasting models during the recent financial crisis. We find in general that only a small number of single indicator models were performing well before the crisis. Pooling can substantially increase the reliability of leading indicator forecasts. During the crisis the relative performance of many leading indicator models increased. At short horizons, survey indicators perform best, while at longer horizons financial indicators, such as term spreads and risk spreads, improve relative to the benchmark.
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Poland Weathers the Crisis
Martina Kämpfe
Wirtschaft im Wandel,
No. 12,
2009
Abstract
Expansion of economic activity in Poland in 2009 continued at a markedly lower level compared to previous years, but despite the falling external and domestic demand, economic recession did not happen until now. Early stabilisation measures, supported also by the European Community (EC) and the International Monetary Fund (IMF), helped to avoid substantial instabilities in the financial sector. It seems that Poland is not as hardly affected by the financial crisis as other countries. Unlike previous years, now net exports were the main driving force for growth – they more than compensated the decrease in domestic demand.
Unemployment had risen up from the lowest level in the last decade, but still moderately due to measures of job security. Given the further shrinking labour demand, unemployment will increase despite modest economic activity. Fiscal policy has to meet challenges under the current economic crises: Excess expenditure and deficiency in receipts will deteriorate general government deficit in 2009 and 2010. Without adopted consolidation strategy, Polish convergence to the Euro area will have to be postponed.
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Tentative Recovery, Public Debt on the Rise
Wirtschaft im Wandel,
2. Sonderausgabe
2009
Abstract
In autumn 2009, the world economy appears to be growing again. The situation has improved mainly because drastic measures of central banks and governments stabilized the financial sector. More recently, the real economy is supported by fiscal programs taking effect. However, recoveries are usually slow if, as it is the case now, recessions have been intertwined with banking and housing crises. Thus, the industrial economies will not gain much dynamics this year and next, while chances for an upswing in emerging economies are much better.
The German economy stabilized during summer as well, with remarkably robust private consumption. An upswing, however, is, due to several factors, not in sight: Some important export markets will not rebound quickly, and consumption will be dampened by rising unemployment that, up to now, has been contained, not least with the aid of short-term working schemes. All in all, production shrinks by 5% in 2009 and will increase by no more than 1.2% next year. Public deficits are on the rise, with (in relation to GDP) 3.2% this year and 5.2% in 2010.
A credit crunch due to deteriorating balance sheets of banks is a major risk for the German economy. Policy should address this problem by making sure that equity ratios are sufficiently high. One way would be to impose public capital on banks that do not comply with certain regulatory ratios. These should be higher than the ones presently in force. Fiscal policy should begin consolidating in 2011, mainly by dampening the rise of expenditures. Tax cuts are only justified if they are accompanied by very ambitious spending cuts.
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Global Financial Crisis Seriously Hits Russian Economy Because of Structural Imbalances
Martina Kämpfe
Wirtschaft im Wandel,
No. 6,
2009
Abstract
Due to the falling global demand for commodities and the heavy decline of world oil prices in last summer, Russian economy was affected seriously. The following decrease in export revenues and a wave of short-term capital withdrawals led to a crash of Russian stock and capital markets and a deterioration of the economic situation at the end of the previous year. The government decided to stabilize the exchange rate of the Rouble by interventions and to support the domestic banking sector in order to maintain credit availability. In respect of the approaching recession, the parliament approved an economic stimulus package that would help to stabilize the economy and to avoid too strong social burdens for the households. Nevertheless, there is a strong weakening of economic growth because of the economy’s dependency from oil prices and the lack of alternatives up to now.
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German Economy Drawn into the World Recession
Wirtschaft im Wandel,
1. Sonderausgabe
2009
Abstract
In spring 2009, the world economy is in a deep recession. The intensification of the financial crisis in autumn has caused a sharp contraction of demand. The reaction of monetary and fiscal policy was substantial, but up to now (April 2009), it has not succeeded in restoring confidence of economic agents. Although some leading indicators point to a stabilization of production in the coming quarters, the downturn will not come to an end before next winter, because the financial crisis will continue to put strain on the real economy for some time to come.
The German economy is in its deepest recession since the foundation of the Federal Republic. Germany is particularly affected, because at the core of the economy is the production of those goods for that world demand has collapsed most: capital goods and high-quality consumer durables. While exports and private investment activity will continue to shrink this year (albeit at a slower rate), private consumption will be a stabilizing factor for some time, as will public investment activity in the second half of the year. Later in 2009 and in 2010, rising unemployment will depress consumption, while in this forecast, it is assumed that exports and investment slowly recover in 2010, because the financial turmoil will calm down.
For economic policy, a recapitalization of the banking sector should have priority. The ECB should lower its key interest rate to 0.5%. Given the sharply increasing fiscal deficits, a new, third fiscal program would be counterproductive. Only if monetary policy fails to stabilize the economy, further fiscal measures, coordinated at a European level, should be considered.
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The Ending of Solidarity Pact Payments: Are the “Neue Länder” Prepared Sufficiently?
Katja Wilde, Sabine Freye
Wirtschaft im Wandel,
No. 3,
2009
Abstract
Up to 2019, the “Neue Länder” in Germany are benefitting from financial transfer within the framework of the solidarity pact. From 2005 to 2007, the “Neue Länder” were able to improve they financial situation and used the solidarity pact payments efficiently. However, these payments are decreasing annually. This implies a significant financial reduction to the “Neue Länder’s” overall budgets and a considerable challenge for their future investments. This article analyses publications by the governments of the “Neue Länder” about their medium term budget planning and related progress reports from the year 2006. The consolidation of their budgets seems to be an essential aspect in the policy strategy of “Neue Länder” due to limited tax autonomy and legal restrictions on their expenditures. However, we identified several consolidation strategies with regard to infrastructural priorities, restructuring of administration, and creation of reserves. The public revenues of the “Neue Länder” are expected to decline in 2009 due to the current recession. In case that there are no fundamental changes in the underlying economic structures, the financial scope of the “Neue Länder” is going to be increasingly constrained, in particular with regard to future investments.
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Yes to Investments by Public Authorities for the Future! But Business Cycle will no Longer be Saved by it!
Hans-Ulrich Brautzsch, Brigitte Loose, Udo Ludwig
Wirtschaft im Wandel,
No. 3,
2009
Abstract
In order to mitigate the effects of the deep economic recession, the German federal government has adopted two economic stimulus packages to be applied in the period from 2009 to 2010. According to our estimations, these programs include investments amounting to 25.3 billion Euros mainly in infrastructure and education. We investigate the total effects of these investments on production and employment using a static input-output model. We find that the gross domestic product will increase by at most one percentage point, namely 0.4 points in 2009 and 0.7 points in 2010. This implies that approximately 400 000 jobs will be safeguarded. About one quarter of the effects will concern construction and business services respectively. For several reasons, our calculations constitute the upper bound to the expected effects. The increasing demand in construction could lead to significantly increasing prices. In light of the expected decline in production, the economic effects of the programs may appear to be low. Obviously, the strong decrease in external demand and its impact on the economy cannot be effectively combated by instruments of national economic policies.
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