Germany’s economic prospects are looking up after two grueling years of near-zero growth. The consumer-led revival, though, papers over enduring industrial weakness for which there’s no quick fix.
(Bloomberg) — Germany’s economic prospects are looking up after two grueling years of near-zero growth. The consumer-led revival, though, papers over enduring industrial weakness for which there’s no quick fix.
Data this week signaled the fledgling recovery in Europe’s largest economy is gaining momentum — especially in service sectors like tourism and hospitality. The mood among businesses is perking up as confidence builds that a widely anticipated winter recession has, in fact, been avoided.
“Consumers are a bit more certain about developments and are happy to spend a bit more,” said Anja Heimann, an economist at HSBC. But with manufacturing still on the back foot, “we don’t really expect a strong pickup in Germany, because industry has such an important weight in overall growth.”
An initial verdict on first-quarter gross domestic product is due Tuesday from Destatis, with the Bundesbank recently reversing an earlier call for contraction to now predict growth, albeit modest. On the back of shrinking output in the previous period, rising industrial production and a better performance by construction amid mild winter weather probably buoyed the result.
“The German economy is on the road to recovery, according to recent survey data. The stronger April reading of the Ifo business climate index points to higher-than-expected activity in the current quarter, mainly driven by accelerating growth in the services sector.”
—Martin Ademmer, economist. Click here to read the full note
Whatever the outcome, there’s a good chance this quarter will be stronger. Business expectations measured by the Ifo institute hit a one-year high in April, while consumer sentiment gained for a third month thanks to rising pay expectations, according to GfK.
The renewed belief comes against a backdrop of moderating inflation, which has slowed to 2.3% from a peak of 11.6%. That trend is mirrored across the region, prompting the European Central Bank to pencil in a first rate cut for June following its barrage of hikes.
Companies reporting first-quarter results this week began to reflect the better news: Software maker SAP SE foresees record revenue growth in its cloud business, while Adidas AG boosted its profit target.
The mood in the flagship auto sector isn’t much better. Supplier Continental AG fell short of already low expectations, and CEO Nikolai Setzer warned shareholders Friday of a “sluggish start to the year.”
Some are optimistic that manufacturers will eventually catch up with other parts of the economy.
Bundesbank President Joachim Nagel said he’s hearing of “relatively robust” factory orders, while Deutsche Bank AG analysts are bullish that global growth will support exports in the coming months. The International Monetary Fund recently lifted its projection for world output in 2024 by a touch, to 3.2%.
Chancellor Olaf Scholz has also struck an optimistic tone, saying “the contribution of German industry to growth, prosperity and employment remains unbroken.”
Structural worries also loom large. Lowly longer-term GDP forecasts worried Economy Minister Robert Habeck when he presented a meager upgrade to this year’s projection on Wednesday. The government now sees growth of 0.3% — up from 0.2% before.
“We must enable new economic dynamism, strengthen innovation, reduce unnecessary bureaucracy and tackle labor shortages with determination,” Habeck said.
That’s proved difficult. A recent €3.2 billion ($3.4 billion) tax-relief package was diluted during lengthy negotiations and deemed by Finance Minister Christian Lindner as only a first step toward more rapid economic expansion.
What’s more, Scholz’s three-party coalition will need to find about €20 billion in savings for next year’s budget to comply with constitutional borrowing limits. But while the resulting debate may restrain the economic upswing, it won’t prevent it, according to Holger Schmieding, chief economist at Berenberg.
“As long as policy uncertainty doesn’t get worse, households and businesses are likely to step up spending from the recent depressed levels,” he said. “The rebound in business and consumer expectations points that way.”
—With assistance from Ben Sills and Kamil Kowalcze.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
The Canadian Press. All rights reserved.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.
Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.
The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.
Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”
Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.
Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
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