BERLIN (Reuters) – The German economy contracted by a record 9.7% in the second quarter as consumer spending, company investments and exports all collapsed at the height of the COVID-19 pandemic, the statistics office said on Tuesday.
The economic slump was much stronger than during the financial crisis more than a decade ago, and it represented the sharpest decline since Germany began to record quarterly GDP calculations in 1970, the office said.
Still, the reading marked a minor upward revision from an earlier estimate for the April-June period of -10.1% that the office had published last month.
Consumer spending shrank by 10.9% on the quarter, capital investments by 19.6% and exports by 20.3%, seasonally adjusted data showed.
Construction activity, normally a consistent growth driver for the German economy, fell by 4.2% on the quarter.
“The second quarter was a complete disaster,” VP Bank economist Thomas Gitzel said. “Regardless of whether it is about investments, private consumption, exports or even imports -everything was in free fall.”
The only bright spot was state consumption, which rose by 1.5% on the quarter due to the government’s coronavirus rescue programmes, the office said.
The German parliament has suspended the debt brake this year to allow the government to finance its crisis response and fiscal stimulus push with record new debt of 217.8 billion euros.
The fiscal U-turn after years of balanced budgets means that the German state recorded a budget deficit of 51.6 billion euros from January to June, the statistics office said in a separate statement.
That represents a deficit of 3.2% of economic output as measured by the EU’s Maastricht criteria.
Employment edged down by 1.3% on the year to 44.7 million in as sign that the government’s efforts to shield the labour market from the coronavirus shock with its short-time work programme are paying off.
The relatively mild impact of the crisis on employment helped to stabilize income for many households, which together with the reluctance to consume, led to a considerable increase in household saving.
The savings rate almost doubled to 20.1% in the 2nd quarter compared to the previous year, the office said.
The German central bank expects household spending to drive a strong recovery in the third quarter, though the economy might not reach its pre-crisis level before 2022.
The government’s stimulus measures include a temporary VAT cut from July to December worth up to 20 billion euros, which Berlin hopes will give household spending an additional push.
“The reopening of the economy will give the German economy a strong boost in the period from July to September,” Gitzel said, but he added that the moment of truth would come in the autumn and winter months, which could see a wave of bankruptcies.
“In addition, the negative consequences of structural change in the automobile industry are becoming increasingly evident,” Gitzel said, pointing to many small suppliers in the sector that are struggling to adapt to digitisation and electrification.
(Reporting by Michael Nienaber; editing by Thomas Seythal, Andrew Heavens and Giles Elgood)
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
