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Falling exports bring German economy to standstill in fourth quarter

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BERLIN (Reuters) – Shrinking exports held back German economic activity in the fourth quarter of last year, detailed data showed on Tuesday, confirming that Europe’s largest economy was stagnating even before the coronavirus outbreak began.

Germany’s export-dependent manufacturers are being hit by a slowing world economy and increased business uncertainty linked to tariff disputes and Britain’s exit from the European Union.

The Federal Statistics Office said exports fell by 0.2% in the fourth quarter from the third, which meant that net trade took off 0.6 percentage points from gross domestic product growth.

The trade outlook remains clouded as the coronavirus epidemic is adding another risk, Ifo President Clemens Fuest said. The Ifo index for export expectations fell in February, with car companies among the most pessimistic, Fuest added.

Gross investment – which includes construction – rose by 2.9% in the last quarter of the year, adding 0.6 percentage points to growth, the statistics office said.

State consumption added 0.1 percentage points to growth while private consumption, which has been a key pillar of support recently, made no contribution.

The Statistics Office confirmed that the German economy grew by 0.6% last year, the weakest expansion rate since the euro zone debt crisis in 2013.

For 2020, the government expects growth to pick up to 1.1%, helped mainly by a higher number of working days in a leap year. Adjusted for calendar effects, Berlin predicts 0.7% growth.

Andrew Kenningham, an analyst from Capital Economics, said the German economy would continue to stagnate during the first half of this year as global demand would remain weak and domestic investment was likely to drop.

The impact of the coronavirus on the German economy through disrupted supply chains or lower demand from China had been small so far, Kenningham noted.

“But the longer the disruption in China continues, the greater the risks. And the possibility of the virus spreading in Europe poses a new downside risk.”

China is Germany’s most important trading partner, with car makers being especially dependent on both Chinese supply chains and demand from China.

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What Olaf Scholz means for the world economy – BBC News

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Olaf Scholz

EPA

It is an important moment for Europe. A new German chancellor. And what happens in the German economy affects us all.

It also happens to be the elevation of an incumbent finance minister to the most powerful position in European politics.

I did the last lengthy English-language interview with Olaf Scholz, when he was visiting London in summer to seal a deal on global multinational taxation, before he became favourite for the German chancellorship.

He was almost tearful with joy at the G7 agreement, on a topic he had suggested years before. The agreement “will really change the world”, he told me, of a move impossible a year before with President Trump.

A political rival once likened his grin to that of the Smurf cartoon characters. He retorted that they are “small, crafty and always win”.

Signature policies

There are three signature economic policies he has been associated with that are of ongoing significance.

For one, he told me of his pride that the short-time working schemes, whose use was promoted in Germany by his ministry in the aftermath of the global financial crisis, were now being used around Europe, including the UK, in the guise of the furlough scheme.

“It was right that we gave very strong fiscal answers to fight against the pandemic,” he told me.

“We supported the health of our people with the money we spent, but also the economy and many jobs.

“Short-term allowances, Kurzarbeit – the method which I used when I was the minister of labour in Germany 10 years ago with the last crisis – are now something that is used, not just in Germany, but all over the EU and many other countries of the world. And this shows that it is right to do something against a crisis like this.”

He was also responsible for the Agenda 2010 reforms of the last centre-left Chancellor Gerhard Schröder. Those reforms saw significant reductions in labour costs in Germany, the establishment of low-paid “mini jobs” and also a rapid rise in German export competitiveness, as well as the revival of its economy.

The inability of southern Europe to compete helped lead to the profound eurozone crisis. The view in Germany, that the rest of Europe had to go through the same “internal devaluation” before Germany would sign off on bailouts of bankrupt eurozone nations, prolonged that crisis.

Amid that fearful moment, he also signed off on the “debt brake” policy that meant in normal times, Germany would not invest. It has been suspended during the Covid pandemic for obvious reasons.

The brake will return under the coalition agreement just struck with the Greens and Liberals, but not before a splurge in investment spending. The challenge is how to square ongoing spending plans with no tax rises and controls on borrowing.

Germany’s long history of state-backed investment lending institutions such as KfW will help bridge this gap. But this will be a source of tension in this untested three-party coalition.

But lessons have been learnt from the eurozone crisis. Mr Scholz now backs non “mini-jobs”, but a €12 minimum wage. As finance minister, he helped Brussels sign off its own centralised capacity to borrow money to help growth and deal with crises.

Climate club

Chancellor Scholz is very focused on climate change, in the home of the European automotive industry. His concept is massive investment to further green Germany’s industrial base. And internationally, the establishment of a “climate club” of like-minded nations to manage frictions over trade.

“Success in fighting against climate change will only be feasible if we include all the nations and if everyone understands why it’s good for himself and for his people. We are now discussing the question of co-operation,” he told me.

How German industry deals with, for example, the EU-proposed border tax on carbon emissions will be a crunch point on the path to net-zero.

All this comes at a time when inflation has spiked up to 6% in the famously inflation-averse nation. And German industry has been hit for six by the supply chain constraints on microchips and other parts in the post pandemic rebound.

Pre-Omicron, most forecasts suggest the German economy will avoid the feared “bottleneck recession”, but the situation is definitely more challenging than at the time of the election in September.

And then there is Brexit and fears over a trade war. Will the famous German carmakers force a new chancellor to fold over Article 16 to protect their exports to the UK? It is not a priority in the Bundeskanzleramt, the washing-machine-like version of the White House in Berlin.

There will be continuity with the policies of the Merkel administration. When I asked about frictions with the UK, Olaf Scholz was diplomatic but pointed.

“I’m always optimistic and happy that we got a deal in the end on the relationship between the European Union and the UK, and I hope that everyone will follow the deal and that everything will be exactly to what we have just written down,” he told me.

“And if this is the case, I think we can be assured that we will have good trade relations also in the future, which would be good for the people of the UK as well as for the European Union.”

So some reason for optimism, as long as the deal is followed. For now, Chancellor Scholz has his own economic challenges closer to home.

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French Economy Shows Little Sign of Succumbing to Omicron Angst – BNN

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(Bloomberg) — French economic activity will continue to rise in December, despite another wave of the Covid-19 pandemic and fresh uncertainty over the omicron variant, according the Bank of France.

Completed at the end of last week, the central bank’s monthly survey of 8,500 firms is the first indicator of how businesses in the euro area’s second-largest economy are faring since the new coronavirus strain emerged.

Based on their responses, the bank estimates economic activity was 0.5% above pre-crisis levels in November and will be 0.75% higher this month. That means output for the whole fourth quarter will also expand by almost 0.75%.

The report provides some reassurance on the capacity of European economies to weather the latest virus surge. It follows bullish remarks last week by Bank of France Governor Francois Villeroy de Galhau, who said omicron wouldn’t change the outlook “too much.”

While France late Monday introduced further restrictions — including closing nightclubs — to slow the spread of the disease, the moves are designed to have limited economic impact and the government has pledged to compensate those affected.  

Even so, the central bank’s survey found that some companies “indicated difficulties in giving a short-term outlook” because of the uncertainties — particularly in industries like hospitality and air travel.

In addition, hiring difficulties and supply disruptions persist. About half of firms polled said they’re struggling to find staff and 57% of industrial companies said supply snarls have dented activity, according to the Bank of France.

©2021 Bloomberg L.P.

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Japan economy contracts 3.6% in Q3 on weaker consumer spending, trade – Business Standard

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Japan’s contracted at a 3.6% annual rate in July-September, according to a revised estimate released Wednesday.

The downgraded growth estimate for the last quarter, down from an earlier report of a 3.0% contraction, reflected weaker consumer spending and trade, the government said.

The world’s third-largest has been mired in recession and struggling to recover from the impact of waves of coronavirus infections.

The latest outbreak, in the late summer, has receded for now with a sharp drop in cases. But it hit during the usually busy summer travel season, with calls for restricted business activity and travel hurting restaurants, hotels and other service sector industries.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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