Economic growth in Germany: changes in inflation,

unemployment
June 29, 2017 admin Macro

Part of the syllabus: Macroeconomics Article

Source: Yahoo News / Deutsche Welle
Date of the article: 2017-06-26 / 2017-06-20
Link to article: German business sentiment ‘jubilant’: Ifo / Ifo projects stronger German
economic growth
Any other similar article, no matter the date, would fit the suggested talking points. Articles
which talk about the Ifo report are great because there’s a little bit of analysis and a bunch of
figures/facts you can use. So, Germany’s expectations of the future are better than ever before,
unemployment is low and falling, inflation might start picking up as well. Can we use economic
concepts to explain what is happening in the country? How are the main economic variables
connected?

Talking points for your Macroeconomics Internal Assessment:

 Define and explain what is economic growth. You might want to think about if it’s
increasing GDP or growing potential output or both?

 You might jump right into explaining why GDP is increasing: AD shifting to the right due
to several reasons which are mentioned in the macroeconomics article. Those include
higher consumption, possibly increasing investment, also growing exports. Draw a
diagram – choose either the Keynesian or the Neo-Classical approach and stick with that
for now.

 Remember to mention the multiplier and the accelerator effects! Define both concepts
and explain how do they affect GDP growth.

 Both articles mention growing inflation and falling unemployment. This should trigger
your memory right away – Phillips curve. The relationship between unemployment and
inflation. That could be a good point for discussion. Maybe even a diagram?
  To evaluate, does the relationship between unemployment and inflation described in
the macroeconomic article is the same as the one described by the Phillips curve? Why
or why not? What does the future for German economy look like if the theoretical
relationship holds? You could evaluate at this point by “simulating” different scenarios of
what might take place.

 To evaluate further, look back at your choice of the diagram and the conclusions drawn
from it. Would they change if you chose a different school of economic thought? If you
chose the Keynesian diagram before and let’s say wages increased because AD reached
the bottleneck… what were the long term implications/predictions for/of the economy?
What if you had chosen Neo Classical view?

 Continuing with evaluation: one of the articles mentions Germany’s government

budget and current account surplus. These are ideal to score a few more points on your
IA. Define and explain what both of them are and how do they relate to AD, inflows and
outflows of the business cycle (government spending and taxes, think about how do
taxation revenues change when GDP increases?). What could possibly happen to
government budget and/or Germany’s current account if one of your described
scenarios happen? Is it good/bad for the economy? You could think about
macroeconomic objectives.

 Remember to include quotations! From actual data to possible future scenarios

mentioned in the articles…

http://ibeconomist.com/macroeconomics-article-economic-growth-in-germany-changes-in-inflation-
unemployment/

German business confidence soared to a "jubilant" new high in June,

having already reached a quarter-century peak the previous month, a
survey said Monday.

The closely-watched Ifo business confidence index set a new record of

115.1 points, defying expectations of analysts of a slight decline after it
reached 114.6 in May, the highest since 1991.

The Munich-based Ifo Institute for Economic Research calculates the

score from a survey of 7,000 companies, who are asked to give their
assessments of the current business situation and their expectations for
the next six months.
Analysts surveyed by financial services provider Factset had expected
114.4 points in June.

The strong optimism comes despite challenges for Europe's top

exporters, from US President Donald Trump's "America First" stance on
trade to Britain's looming exit from the European Union.

"Sentiment among German businesses is jubilant," said Ifo president

Clemens Fuest in a statement.

"Companies were significantly more satisfied with their current business

situation this month. They also expect business to improve."

The German economy expanded by 0.6 percent in the first quarter, and
the government expects growth to hit 1.5 percent for the full year, while
several economists have predicted it would reach or top last year's level
of 1.8 percent.

Fuest said that "Germany's economy is performing very strongly. In

manufacturing, the index rose slightly. Assessments of the current
business situation remained unchanged at a very high level."

The optimism was shared by manufacturers, wholesalers and retailers, Ifo

said, pointing to a lower index only in construction where the
assessments of current and future business nevertheless remained at a
high level.

- 'Booming labour market' -

The Ifo survey "suggests that GDP growth will accelerate sharply in the
months ahead," said Capital Economics' Jennifer McKeown, chief
European economist.

"While growth is unlikely to match the pace implied by this survey, we see
the German economy outperforming consensus expectations this year."

McKeown cautioned there were some reasons "not to take this survey at
face value" because "it has been too optimistic for several months now".

"Nonetheless, the health of global demand and the very strong state of
the German labour market both suggest that growth should gain pace in
the months ahead," she said.
Thomas Strobel of UniCredit Research said that the fifth consecutive
monthly rise of the index supported the view that German economic
activity would remain robust throughout this year.

"Private consumer spending is being fuelled by a booming labour market

and record-low unemployment," he wrote in a note.

"Furthermore, despite some temporary loss in momentum, the broader

trend in global trade activity is likely to continue, which in turn bodes well
for German export-dependent manufacturers.

"And with the recovery in global trade expected to continue, a pick-up in

investments is very likely to follow suit."