Month: March 2014
March 24, 2014
But feelings about household income lag behind
WASHINGTON, D.C. — As Germany led minimal improvements in GDP growth in the euro area last year, Germans were more optimistic about their national economy in 2013 than they have been since the global economic crisis. The four in 10 Germans who believed their country’s economy was getting better led all eurozone countries, far outpacing the region’s second-largest economy, France, where only 3% saw things getting better at the time.
As one of the main funding countries for economic bailouts, this recovery in opinions on the country’s economy could partly reflect Germans’ optimism as the broader European Union economy emerged from recession in the second quarter of 2013. Germans’ optimism about the national economy almost recovered to the higher levels seen before the financial crisis of 2008. Though almost half the population (46%) believed the economy was getting worse in 2013, this is an improvement from the 54% who said the economy was declining in 2012 and particularly from the 70% who said so in 2008.
Germans See Better Living Standards
At the same time, Germans’ confidence in their standard of living hit its highest point since Gallup started measuring it in 2007. This increasing positivity could be related to Germany’s unemployment rate, which is at its lowest point in years and is the second lowest in the EU after Austria. Forty-three percent of Germans said their living standards were getting better, again leading the eurozone in optimism. While a quarter (24%) of Germans felt their standard of living was getting worse in 2013, this was a significant improvement from the 51% who felt this way in 2008.
Feelings About Household Income Flat
While feelings about the state of the national economy and personal living standards improved dramatically, Germans’ feelings about their household incomes have remained fairly stable. In 2013, 30% of Germans reported they were living comfortably on their present income and an additional 51% said they were getting by.
These percentages are higher than average for the EU as a whole, where 23% report they are living comfortably and 45% say they are getting by. For both the broader EU and Germany specifically, the percentage of people who report they are living comfortably on their household income has not recovered to pre-crisis levels (in 2007, 34% of EU residents said they were living comfortably).
Germans’ stagnant assessments of their household incomes could partially explain the low domestic spending seen in the last quarter of 2013. Economic growth in Germany between the third and fourth quarters was driven primarily by foreign trade, increasing GDP by 1.1%, not by domestic demand, which cut GDP by 0.7%.
19th March 2014
The Central Bank of Iceland held its policy rates steady and eased up on its previous warnings about the need for rate hikes to curb inflation, saying short-term expectations for inflation had declined while long-term expectations still remain well above the bank’s target.
“Because inflation is lower, the krona stronger, and wage increases smaller than was forecast in February, the medium-term inflation outlook has improved from previous estimates,” said the central bank, which kept its benchmark seven-day lending rate at 6.0 percent in 2013 after raising it by 125 basis points in 2012.
Iceland’s inflation rate eased to 2.1 percent in February from 3.1 percent in January, the lowest rate since February 2011. The bank said data showed that over the past two years, wage costs per man-year had risen considerably less than previous data had suggested and last year’s wage deals would apply to most of the labour market.
The central bank targets inflation of 2.5 percent and last month forecast that inflation in 2014 would average 2.7 percent, rising to 3.4 percent in 2015.
The central bank has been warning about the need for rate hikes for many months and in February it said that its policy stance could be tightened sooner than expected due to the outlook for growth.
The central bank has forecast Gross Domestic Product growth of 2.6 percent in 2014 and 3.7 percent in 2015 and the bank said the outlook for increased growth in demand will, other things being equal, call for an increase in the interest rates.
However, measures that support monetary policy, including medium-term fiscal policy, could offset this while improvements to the economy’s supply side could weaken the inflationary effects of increased demand.
“Whether there is scope for a nominal interest rate reduction will depend on developments in inflation and inflation expectations in coming months,” the bank said.
Further ahead, the bank said real interest rates “must be raised” if the expected outlook materializes but the extent of the increases would depend on inflation.
Iceland’s GDP expanded by 0.3 percent in the fourth quarter of 2013 from the third quarter for annual growth of 3.8 percent, down from 4.9 percent in the third quarter.
The Icelandic krona rose 10 percent in 2013 and has continued to rise this year. Against the U.S. dollar, the krona was trading at 112.85 today, up 2.7 percent this year