2015 growth forecast hiked to 2.1 percent

Germany's leading economic institutes sharply raised their growth forecast Thursday, predicting Europe's top economy will expand 2.1 percent this year thanks to cheap oil, the low euro and strong consumer spending.

2015 growth forecast hiked to 2.1 percent
Robots assembling cars in a Volkswagen factory in Wolfsburg. Photo: DPA

The forecast by four research institutes was sharply higher than the 1.2 percent growth for 2015 they had predicted last autumn.

"The low oil price leaves the Germans more money for consumption, and the low euro is pushing exports," said Timo Wollmershäuser, chief economist at the Ifo Institute, which took the lead this year in writing the annual spring forecast.

The joint paper said that while "consumer spending is the pillar of the upswing", Germany also benefited from "positive impulses from the rest of the euro area, so that foreign trade is contributing to the expansion".

For 2016, the institutes predicted 1.8 percent growth in Germany's gross domestic product (GDP), as the positive effects of low energy prices gradually wear off.

The report comes ahead of the government's official forecast to be released next Wednesday by Vice Chancellor and Economy Minister Sigmar Gabriel, which is also expected to be higher.

The German government had in January predicted 1.5 percent GDP growth for the year, after 1.6 percent in 2014.

The more upbeat forecast comes after the European Central Bank this year launched a massive 1.1-trillion-euro bond buying programme to stimulate the eurozone economy, and as the euro common currency has fallen, making exports more competitive.

The German economic research institutes in their report also predicted that the unemployment rate, already among Europe's lowest, will drop to 6.3 percent in 2015, from 6.7 percent last year, and decline further next year to 5.9 percent.

The researchers expect currently low consumer price inflation to rise only slightly to 0.5 percent this year and to 1.3 percent next year.

The current account surplus of the European export power will continue to rise to a new record €256 billion, or 8.5 percent of annual economic output, they predicted.

In 2014 the surplus was nearly €220 billion, or 7.6 percent of GDP. Next year, the institutes predicted, it will rise to €266 billion or 8.5 percent of output.

The institutes also forecast healthy government finances, with a public surplus of €21 billion this year, up from €18 billion in 2014.
Next year, the public surplus is projected to increase to nearly €26 billion, they said.

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Sweden’s new right-wing govt slashes development aid

Sweden, one of the world's biggest international donors, is planning drastic aid cuts in the coming years, the country's new right-wing government said in its budget bill presented on Tuesday.

Sweden's new right-wing govt slashes development aid

Prime Minister Ulf Kristersson’s government said it planned to reduce the country’s international aid by 7.3 billion kronor ($673 million) in 2023, and by another 2.2 billion kronor in 2024.

That is around a 15-percent reduction from what had been planned by the previous left-wing government and means Sweden will abandon its foreign aid target of 1 percent of gross national income.

International aid for refugees will be capped at a maximum of eight percent of its aid, and will also be reduced.

According to the specialised site Donor Tracker, Sweden was the world’s eighth-biggest international aid donor in terms of absolute value last year, and the third-biggest in proportion to the size of its economy, donating 0.92 percent of its gross national income, behind Luxembourg and Norway.

The new government, which is backed for the first time by the anti-immigration Sweden Democrats, had announced in its government programme last month that it would be cutting foreign aid.

Since 1975, Stockholm has gone further than the UN’s recommendation of donating at least 0.7 percent of its wealth to development aid.

Despite its growth forecast being revised downwards — the economy is expected to shrink by 0.4 percent next year and grow by 2 percent in 2024 — the 2023 budget forecasts a surplus of 0.7 percent of gross domestic product.

It calls for an additional 40 billion kronor in spending, with rising envelopes for crime fighting and the building of new nuclear reactors, as well as a reduction in taxes on petrol and an increase in the defence budget.

The new government is a minority coalition made up of Kristersson’s conservative Moderates, the Christian Democrats and the Liberal party, backed in parliament by their key ally the Sweden Democrats to give them a majority.