Eco Week
Economic Pulse

Hoisting the storm signal 

12/05/2021

Our Pulse is clearly pointing to bad weather, as the blue area of the spider chart – the economic situation in the past three months – is clearly shrinking compared to the situation in the preceding three months – the area within the dashed line. The deterioration is noticeable in all sectors, with the exception of the construction industry. Ifo reported that the business climate in the manufacturing sector worsened in November for the fifth consecutive month. Industrial activity is dampened by supply bottlenecks and rising input prices. The improvement in expectations, in particular in the car industry, could signal that the shortages of parts in this sector are diminishing.

In the retail sector, sentiment has been affected by the fourth wave of the coronavirus pandemic. In some states, restrictions have been tightened by the introduction of the 2G-rule, which requires shoppers to show proof that they are either fully vaccinated or have recently recovered from COVID-19. In addition, the strong rise in prices has been weighing on purchasing power. Harmonised inflation reached 6% in November according to the flash estimate, largely because of hikes in energy and food prices (22% and 4.5%, respectively). Consumer confidence is crumbling and the propensity to buy fell in November to a nine-month low.

When the need is greatest, the rescue is nearest. Last week, the SPD (social democrats), the Greens and the FDP (liberals) reached agreement on forming the next government headed by Olaf Scholz (SPD). The coalition programme provides continuity rather than a radical break with the Merkel policies. As the SPD had promised in its election programme, the minimum hourly wage will be raised from EUR 9.60 to EUR 12.00. For the Greens, the priority is meeting the climate targets of the Paris agreement through an early exit from coal-powered energy plants and the closure of coal mines “if possible” by 2030. The new finance minister, Christian Lindner (FDP), is expected to uphold the budgetary rules in Germany and at the European level. The lifting of uncertainties concerning policies could instil confidence to business and consumers. However, the first challenge for the incoming government is to deal with the fourth wave of corona infections.

GERMANY: QUARTERLY CHANGES
THE EXPERT ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

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