Lift: But Little Tailwind

The world economy had been losing its momentum lately. The sovereign debt and banking crises led to recession in Europe while the world’s aspiring economies have been slowing markedly. Knock-on effects from the advanced economies, structural problems and looming capital outflows can explain the latter. However, global prospects have brightened again. Europe has turned the corner and the emerging economies are once more picking up speed. However, the world economy will continue to lack its previous momentum. With Germany’s price competitiveness deteriorating, foreign trade looks set to enjoy only a modest improvement. Overall, investment activity in this country is picking up but will falter again if a favourable tax policy is not maintained. The strong labour market should continue to enliven consumption, but this will remain more of a stabilizing factor than a stimulant. With these givens, the German economy can be expected to grow by around ½ per cent in 2013, with expansion passing the 1 ½ per cent mark in 2014. At 2.86 million, the average annual unemployment rate will be some 6 ½ per cent in 2014. This year the national budget will show a slight deficit but should next year achieve a surplus just short of ½ per cent of GDP.