Business Cycle Forecast 2009: World Financial Crisis Triggers Deep Recession in Germany
Wirtschaft im Wandel,
No. 1,
2009
Abstract
At the beginning of 2009, the major industrialized economies are in recession. The financial turmoil has developed into a crisis of confidence to and solvency of the financial sector, raising financing costs and lowering the value of assets for firms and households. Monetary and fiscal policies have reacted strongly, but they will not succeed in ending the recession until the financial sectors in the US and in Western Europe have stabilized. This forecast is made under the assumption that stabilization will start in the second half of 2009 because the continued protection of important financial institutions by governments will restore confidence – albeit at a low level – and because at this time, the fall of US-house prices will start to fade off.
The German economy is hit particularly hard, because the financial crisis depresses worldwide investment demand and the sectors producing investment goods are at the heart of the German economy. The recession will not end before the second half of 2009, and capacity utilization will decrease throughout the year. We expect a tentative revival to begin in a recovery of exports. While private investment will shrink markedly, consumption of private households and the government as well as public investment will dampen the downturn. GDP will shrink by 1.9% in Germany and in East Germany by 1.5% because this region is less dependent on exports.
Economic policy has to help restoring confidence, and this can only be achieved if it behaves in a consistent and predictable way.
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Business Cycle Update Summer 2007: German Upswing Still Healthy
Wirtschaft im Wandel,
No. 8,
2007
Abstract
In the summer of 2007, the economies of the European Union and Japan continue their upswing, while the USA is still suffering from economic weakness. The expansion of the East Asian economies remains highly dynamic. Compared to the beginning of the year, conditions at the global financial markets have deteriorated slightly: Long-term interest rates have risen considerably; with notably more than half of a percentage point the increase was especially pronounced in the Euro Area. Furthermore, markets have become increasingly volatile. The less favourable conditions at the global financial markets, among other reasons, will cause the upswing in the Euro Area and Japan to slightly slow down. While the USA will not enter a phase of stagnation, the economy will continue to expand at rates below its potential until 2008. In Germany, the economic recovery took a temporary break in the first half of 2007. While special circumstances (first, brought forward purchases in anticipation of the increase in the value added tax and second, the high construction activity because of the end of home owners subsidies) raised considerably economic activity towards the end of 2006, they caused a downturn in demand in the beginning of 2007. After this short dip, the upswing will recommence. Private consumption will be the main driving force, as incomes have increased considerably in the wake of the improved labour markets conditions. The upswing will continue next year, albeit at a slower pace. Higher interest rates, the appreciation of the Euro and the expected rise in labour costs will have some impact. Overall domestic demand will slow down, but only a little, as household consumption increases. GDP will expand by 2.6% and 2.5% in this and next year, respectively. The number of unemployed persons will decline below 3.5 million in 2008.
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Die Lage der Weltwirtschaft und der deutschen Wirtschaft im Frühjahr 2007
Wirtschaft im Wandel,
1. Sonderausgabe
2007
Abstract
In spring 2007, the global economy remains robust. While growth rates have declined slightly from last year, as business activity in the US has slowed, they continue to reflect an upswing, which by now has held on for a notably long time. Especially the developing and emerging countries have been raising output very fast, due in part to their increasing role in the international division of labour. In the industrialised economies, on the other hand, the current recovery has not been remarkably strong. So far the slowdown in the US economy has not spilled over to other regions and the Euro Area as well as Japan continue to expand at a high pace. Here expansive monetary policy provided a notable support. Buoyant financial markets stimulated the world economy additionally, even though market volatility has increased since the end of February. The US central bank’s current concern with inflationary risks keeps it from loosening its slightly restrictive monetary policy. It will be the second half of the year – when price pressures have eased – until the Fed makes its first rate cut. The ECB, on the other hand, has been preparing financial markets for a further increase in interest rates by summer. In 2007 and 2008 the growth disparities in the industrialised countries will diminish. On one hand, the upswing in the Euro Area will start to moderate, as fiscal policy hampers business activity and monetary policy will not stimulate anymore. On the other hand, the US economy will slowly gain pace from summer onwards; the emerging markets will continue to develop in a highly dynamic fashion. World-GDP in this and next year will likely rise by about 3 ¼ % in 2007, which is still faster than in the average of the last ten years. World trade will rise by 7 ½ % in the coming two years. An oil price of 65 US-Dollar and an exchange rate between the Euro and the US-Dollar of 1.32 were assumed for both years 2007 and 2008. The real estate market in the USA continues to be a risk for...
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Considerable Export Potentials in Eastern Germany
Götz Zeddies
Wirtschaft im Wandel,
No. 2,
2007
Abstract
For a long time, the Federal Republic of Germany is one of the countries with the highest export performance in the world. But a closer examination of East- and West-Germany reveals substantial regional differences. The collabse of the markets in the eastern European countries, which were the main trading partners of GDR, after the breakdown of communism caused a sustainable decline of East-German exports. Nevertheless it was expected that the economic recovery in the former communist countries and the access to new export markets in the western world would cause an upward movement of East-German Trade. Although during the last years East-German exports grew faster than those of Western Germany, the east German share in Germanys total exports is still comparatively low. On the basis of a gravity-model of trade, bilateral export potencials are empirically analysed. This is done for the Federal Republic of Germany as a whole, and seperately forEast and West-Germany. Afterwards, the calculated export potencials are compared with actual exports. The results show that Germany as a whole exceeds its export potencial against the majority of its main trading partners. The differentiated analysis for East and West-Germany supports the hypothesis that Germanys high export performance stems from the western part of the country, whereas the eastern part exploits its export potencial with Germanys main trading partners only to the half. The unexploited export potencials as well as the higher concentration on the fast-growing central and eastern European markets imply considerable potencials for East-German exports to grow in the future.
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Regionalpolitische Optionen für schrumpfende Städte
Peter Franz
Aus Parlament und Zeitgeschichte,
2005
Abstract
The current policy for the treatment of the problems of shrinking East German cities favours too one-sided the demolition of vacant housing units and the economic recovery of large housing enterprises. In addition to this a pessimism spreads that cities with a shrinking population sooner or later will suffer from economic distress. Such policies and attitudes are not suitable to improve the chances of the cities competing interregionally for business locations. It will be recommended to integrate demolition measures in a local strategy aimed to strengthen the existing economic potentials and to ameliorate the image of the city.
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Germany after stagnation: Slow stimulation of overall economy by export driven recovery
Wirtschaft im Wandel,
No. 9,
2004
Abstract
The main centres of the recovery in this business cycle remain in the US and East Asia. Amid the fading stimuli from economic policy, the US economy loses some of its momentum and GDP will increase by 4.5% in 2004 followed by 3.5% in the coming year. In the euro area, the vibrant external trade more and more spills over into the domestic economy. Still, with 1.5% this year and 2% in 2005, GDP will clearly underperform in comparison to the growth centres of the world. In Germany, even more so than in the euro area, the revival depends on the world economy. Exports will maintain their strong upward trend and in their wake, demand for consumer as well as capital goods will start to increase. But increases in consumption will remain small this year and it will be 2005 before clear improvements can be observed. After stagnating in 2003, GDP will rise by 1.8% both this and next year.
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East Germany´s economic situation and outlook: in the wake of economic recovery
Wirtschaft im Wandel,
No. 8,
2004
Abstract
Die weltweite Erholung der Konjunktur wird in diesem Jahr trotz der Belastungen durch den Preisanstieg bei Mineralöl und anderen Energieträgern verstärkt auch auf die Wirtschaft in den neuen Bundesländern ausstrahlen. Wegen des geringen Anteils der Herstellung international handelbarer Güter und der vorrangigen Ausrichtung auf den Inlandsmarkt in Deutschland nimmt die ostdeutsche Wirtschaft zunächst aber relativ wenig von den Impulsen aus dem Ausland auf. Erst über die Produktionsverflechtungen mit dem früheren Bundesgebiet wird sich auch im Ostteil die gesamtwirtschaftliche Expansion im späteren Verlauf dieses Jahres verstärken. Im kommenden Jahr empfängt die ostdeutsche Wirtschaft zusätzliche Impulse vom Übergreifen der konjunkturellen Erholung auf die Inlandsnachfrage in Deutschland. Bereits 2003 wurde ein Drittel des ostdeutschen Bruttoinlandsprodukts in den alten Bundesländern und im Ausland realisiert, und allein dies hatte für einen Produktionsanstieg gesorgt, während die Nachfrage in Ostdeutschland rückläufig war.
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IWH Economic Outlook 2004: No longer waiting for the economic upturn
Wirtschaft im Wandel,
No. 1,
2004
Abstract
The Economic Outlook 2004 updates the IWH forecast for 2004 and gives a first outlook on 2005. The world recovery is mainly driven by the strong economic impulses from the USA. Whereas the upturn in the US is domestically driven, the impetus in the euro area is coming from external trade. Nonetheless in Germany corporate investment activity still is slow. Although the tax reductions in 2004 will support private consumption, its overall economic impulse will be weak. German GDP in 2004 will increase 1.6% and 1.8% in 2005. At the labour market no clear improvement can be expected till the second half of 2004; on a yearly average employment will decrease by 100 000 persons in 2004. Albeit the partly broad forward third instalment of the tax reform, fiscal policy will have a restrictive aim. Monetary policy on the other hand will continue to be highly expansive, but as the output gap shrinks the ECB can be expected to increase interest rates moderately.
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A macroeconometric model for the Euro economy
Christian Dreger
IWH Discussion Papers,
No. 181,
2003
Abstract
In this paper a structural macroeconometric model for the Eurozone is presented. In opposite to the multi country modelling approach, the model relies on aggregate data on the supra-national level. Due to nonstationarity, all equations are estimated in an error correction form. The cointegrating relations are derived jointly with the short-run dynamics, avoiding the finite sample bias of the two step Engle Granger procedure. The validity of the aggregated approach is confirmed by out-of-sample forecasts and two simulation exercises. In particular the implications of a lower economic recovery in the US and a shock in the nominal Euro area interest rate are discussed.
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