May 30, 2024

Scholz Optimistic on German Economy, Citing Inflation and Jobs

(Bloomberg) — German Chancellor Olaf Scholz is optimistic on his country’s economic prospects, citing record employment and slowing inflation thanks to falling energy costs.

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“Since the start of the year, production in these energy-dependent sectors has increased noticeably — just like in the industry as a whole,” Scholz said on Sunday, also referencing likely European Central Bank interest-rate cuts, an increase in the benchmark DAX Index, and rising confidence among German businesses and consumers.

Speaking at the opening of a major trade fair in Hanover, Scholz highlighted that “above all — and in my view almost most importantly — the real gross value added in industry has remained stable despite inflation and despite the temporary decline in production.”

“The contribution of German industry to growth, prosperity and employment remains unbroken,” he added.

The Bundesbank acknowledged last week that the German economy — Europe’s largest — probably avoided a winter recession thanks to a pick-up in manufacturing, rising exports and surging construction at the start of the year.

Data due in the coming days are likely to support that narrative, with initial results of monthly purchasing-manager surveys on Tuesday and the Ifo business sentiment index a day later expected to show improvements.

The potential economic turnaround hasn’t helped the electoral prospects of Scholz’s Social Democrats. The latest survey by INSA for Bild am Sonntag showed the party with just 15% support in national polls, behind the Christian Democrats at 30% and the far-right Alternative for Germany at 18%.

The ruling coalition — which also consists of the Greens and the Free Democrats — is attempting to win back voters, with Scholz on Sunday saying that the government is in talks on how to extend the power price brake scheme beyond 2027. He also hinted that Berlin’s next growth package may include more tax incentives for research and development.

–With assistance from Michael Nienaber.

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