Germany
Economy: Grew by 0.1% compared with 1.5% in the first quarter
Unemployment: Fell from 6.4% in Q1 to 6.1% in Q2
Inflation: Fell by 0.1% over previous quarter to 2.3%
Interpretation: Germany is Europe’s biggest economy and is largely driven by its exports. This quarter’s weak growth is primarily due to an anaemic expansion in exports, as there were more imports than exports in the quarter. Less demand for exports resulted in less production, leading to a lower growth rate. In addition, consumer spending and investment in construction also fell, resulting in less demand for goods and services causing a fall in inflation. Despite of weak growth levels, German companies continued to increase output and hiring, which resulted in a fall in unemployment over the period.
Budget Deficit: The government forecasts to reduce its deficit from 3.7% in 2010 to less than 1.5% by 2014 as the consolidation measures are implemented. These measures include the reduction of social security benefits and a number of new taxes.
Outlook: Germany’s economic growth is expected to remain robust this year, primarily driven by consumer demand and greater exports to Asia. Rising employment coupled with wage increases will support private consumption growth. Meanwhile, government finances have been kept under control, increasing only marginally to 3.3% of GDP, the lowest among the G7 countries. Overall real GDP is projected to rise by 2.6% in 2011 and by 1.9% in 2012.
France
Economy: Zero growth compared with 0.9% in Q1
Unemployment: Fell by 0.1% from Q1 to 9.6%
Inflation: Fell by 0.3% to 1.9% this quarter
Interpretation: Even though the foreign trade balance grew by 0.3%, contributing positively to GDP growth, this effect was undermined by a sharp decline in consumer expenditure which fell by -0.7%. A reduction in consumer spending caused in decline in demand for goods and services, reducing the rate of growth and inflation. In addition, manufactured production fell by 0.6% and production of services fell by 0.8% further lowering output. Confidence in the French economy fell following rumours that the economy could lose its AAA rating. Increased hiring of executives led to a small decline in the rate of unemployment.
Budget Deficit: The government aims to reduce the budget deficit to 3% of GDP by 2013. Its fiscal consolidation measures include: civil service cuts and them withdrawal of certain tax breaks.
Outlook: The French economy is expected to grow by over 2% in 2011 and is expected to reach its pre-crisis level by the end of the year. Growth in the economy will be led firstly by business investment, in particular construction investment. This investment will reduce unemployment and help to increase consumer spending. In addition, the recent general pension reform and cancellation of exemptions to the job search obligation are assumed to increase the working population. Inflation is expected to fall further and this coupled with the fall in unemployment will aid in increasing private consumption, therefore increasing demand for goods and services and subsequently increasing output. Consumers will remain under pressure as their incomes continue to be squeezed, which will limit the extent of economic growth.
UK
Economy: The UK expanded by only 0.2% in the quarter, due to weak domestic demand, falling retail sales, high inflation, muted wage growth and consumer debt.
Unemployment: rose by 0.2% in the quarter to 7.9%, with youth and graduate unemployment rising in particular
Inflation: Headline inflation dipped to 4.2% in June but may rebound towards 5% over the next few with the effects of oil prices.
Forecast: The consumer and government sectors will drag on expansion as exports and business investment become the primary drivers of growth. The next few months may well bring better growth than that seen in recent months however, as world trade and investment improves.
Tamara Amarasinghe - -Previously written Economics articles for my school newspaper -Key areas of interest lie in Finance and Economics -Currently ...
