Why should we trust the IMF’s economic forecasts?
Its prediction of a UK recession this year has now been revised
Economic forecasting isn’t an easy gig these days. While economic analysis might seem a purely empirical task that reveals objective information, the truth is that every forecast will inevitably influence the outcome of the next. Economic actors will take estimates of the macroeconomic picture into account and adapt their future behaviour. In other words, every forecast runs the risk of becoming a self-fulfilling prophecy and, depending on its nature, the forecasters want to either avoid or encourage this self-fulfilment.
In the case of Germany, for example, there have been several revisions since December 2022, given that every original forecast turned out to be overly optimistic and in need of a downward adjustment. One should keep this in mind before celebrating yesterday’s news that, according to the IMF, the UK economy could grow 0.4% in 2023, instead of contracting 0.3% as was originally assumed. The fact that Bloomberg covered the story as “Britain’s Economic Guessing Game” is no coincidence, and just because it is good news for a change does not mean this forecast is more reliable than the ones which preceded it. ...
Chinese cars are about to wreck the German market
Government subsidies for electric vehicles are hurting domestic suppliers
Will China be the car manufacturer of the future? If one reads some of the more recent headlines in German media, it certainly seems like it. The leading tabloid paper Bild was in full panic mode, worrying that Chinese cars “will overrun Germany” and that they have “tripled their market share”. A closer look at the data, however, reveals that this 300% increase took place exclusively in the electric vehicle (EV) market, and even there Chinese cars are not the most popular. Starting from very low historic sales numbers, the market share for newly registered passenger cars between January and April 2023 was a meagre 0.8%, compared to the almost 60% share of German car manufacturers. ...
Germany feels the energy pinch without nuclear
Economy minister Robert Habeck has finally admitted there is a problem
Germany is continuing to make senseless energy decisions. Recently the country’s Minister for the Environment and Nuclear Safety, Steffi Lemke, published an op-ed with the prestigious outlet Project Syndicate in which she praised the end of German nuclear power as an “excellent – indeed, visionary – move”.
She argues that supposed problems with energy supply are exaggerated, and that the renewed push for renewables will quickly lead to clean and cheap electricity for industries and households. We do not know if her fellow Green party member and Minister for the Economy, Robert Habeck, has read Lemke’s article, but he doesn’t seem to share her optimism. According to a recent proposal from his ministry, German industries face an existential threat due to high electricity prices — caused by Russia’s invasion of Ukraine. ...
Berlin election highlights AfD’s growing influence
The Right-wing party has become an unwanted kingmaker in Germany
From gay officials to net-zero proposals, Berlin has often been a bellwether for wider trends in Germany. The election of a new conservative mayor on Thursday — the first in more than two decades — might well be an indicator of how the country is governed going forward.
For those who missed it, Berlin had to rerun local elections in February, after the city government botched the original process in the autumn of 2021. Although the centre-Left coalition retained enough seats to rule, after a long internal debate and a vote among its members Berlin’s Social Democratic Party (SPD) decided to ditch both the Left and the Greens for a coalition with the centre-Right Christian Democratic Union (CDU). This was a direct consequence of the party leadership realising that they have shifted too far to the Left, losing ground especially in the working-class districts of Berlin which are economically Left-leaning but culturally conservative. ...
From grain to China, divisions are tearing the EU apart
The bloc is struggling to keep its member states in line
Farmers’ protests seem to be the new canary in the coal mine for European politics. After Dutch farmers protested EU nitrogen regulations in March, the bloc is now at loggerheads with Eastern European countries over the influx of Ukraine grain imports.
The decisions in these countries — Poland, Hungary, Romania, Czech Republic and Slovakia — to ban imports of grain, oil seed, dairy products and meat from Ukraine is a problem for the whole bloc. Individual EU member states cannot simply ban products from a third party, especially if there is a free trade agreement, as in the case of Ukraine. The European Commission was quick to remind Warsaw et al. that trade “decisions can only be taken at the European level. That is why unilateral action is not possible.” This view is, unsurprisingly, not shared in Eastern Europe, and so the grain rebels have not thus far relented. ...
Support for Germany’s Green party plummets
Its unrealistic policies are putting off voters
One of the things the Green Party in Germany could always count on was the popularity of its leadership. Joschka Fischer, the former foreign minister and first elected Green federal politician, was consistently one of the most broadly liked German politicians. Fischer knew very well how to use this popularity to push for a political agenda that was not always popular with the Green base — as with German participation in the Kosovo war.
It was moves like this that made Fischer the face of the so-called “Realo-Wing” (realist wing) of the Green party. Its members were Left-populist during election campaigns but knew that the reality of governing is not the same as being an opposition party. In many ways, the “Realos” made the Greens an almost mundane party in bourgeois Germany. ...
The dollar isn’t going anywhere
Talk of de-dollarisation is divorced from reality
The end of the dollar is all the rage. In a piece yesterday for UnHerd, macroeconomic analyst Philip Pilkington argued for the acceleration of the de-dollarisation of international trade based on the recent news that Brazil and China will trade in their own currencies.
There’s one problem: the two countries have announced this arrangement multiple times — in 2009, in 2013 and now again in 2023. If history is any indicator, this is a routine talking point by the Brazilian and Chinese leadership that has so far lacked any substantial financial follow-through. Another example was an LNG trade in yuan between the China National Offshore Oil Corporation (CNOOC) and the French company TotalEnergies. But, as energy expert Anas Alhaji points out, the actual source of the LNG is the United Arab Emirates, which was paid neither in euros nor yuan but in USD, making the French-Chinese transaction symbolic at best. ...
Germany facing largest strikes in decades
Economic hardship and opposition to green policies have created a perfect storm
If Germany and France are the two pillars of European integration, the EU has stormy times ahead. Paris and other major French cities have been roiled by protests over President Emmanuel Macron’s pension reform, leading to, among other things, the cancellation of a planned state visit by Charles III due to security concerns.
The ongoing cost-of-living crisis that started 14 months ago is now beginning to trickle from the economic realm to the political, and it could turn ugly for those in power. After an unexpected victory for the Farmer-Citizen Movement — only founded in 2019 — in the recent Dutch provincial elections, as well as the troubles in France, Germany could be next on the list. ...