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SECURITY

BND sees economic crisis boosting China

The global financial crisis is resulting in a "geopolitical metamorphosis" that is likely to boost China's standing in the world, the head of Germany's foreign intelligence service said Tuesday.

BND sees economic crisis boosting China
Photo: DPA

“If China recovers more quickly than other (countries), its weight will increase in the region compared to other players,” Ernst Uhrlau, head of the Bundesnachrichtendienst (BND), told the Handelsblatt daily in an interview.

“And internationally, if China becomes the motor of the (global) economic recovery, the country will … have greater influence on the rules of the game. We are most likely experiencing a geopolitical metamorphosis.”

China has doubled its stated defence budget since 2006 and in March announced it would spend 480 billion yuan ($70 billion) in 2009, a 14.9-percent increase on the year before. Experts say actual spending is considerably higher.

The United States, Japan and their allies such as Germany have long expressed concern about China’s military build-up and what they see as a lack of transparency about the intent behind the expansion.

In March a Pentagon report said China’s pursuit of sophisticated weaponry was altering Asia’s military balance and could be used to enforce its claims over disputed territories.

In February the BND, whose job is to inform the government about security and foreign policy issues, compiled a secret report on the possible outcomes of the global downturn, the Handelsblatt said. It laid out three different scenarios: that the economy starts to recover in 2009 and the current balance of power is maintained; that China recovers

more quickly and emerges stronger; and that the economy fails to recover.

Supporting the second scenario is the fact that China is devoting a large part of its economic stimulus package to modernise its infrastructure but also its military, Uhrlau said.

“Under this scenario others would be caught in China’s wake, because growth primarily comes from there. Certain inbalances in Asia would be strengthened. India for example would be affected,” he said.

Uhrlau also said that the global recession might lead to more people joining Islamic extremist groups because these organisations see the crisis as “proof that the West’s supposed domination has lapsed.”

“This could boost recruitment for militant or Jihad groups,” he said.

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ECONOMY

Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s. 

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