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11 INTERNATIONAL NEWS 9.12.2021 OLAF Scholz becsme chancellor of an unhealthier German economy than the one he looked set to inherit when his party won elections in late September. As the Social Democrat leader was sworn in as Angela Merkel's succes- sor yesterday, growth prospects have soured in the weeks it took to negotiate a three-way coalition with the Greens and the Free Democrats. Data this week underscored the dete- rioration in Europe's biggest economy, showing a slump in factory orders that was far worse than any analyst predict- ed as foreign demand plunged. at followed last week's revelation of a once-in-a-generation cost-of-living squeeze for German consumers as in- flation topped all estimates to reach 6% – the highest since the early 1990s. Soaring prices should ease next year and the economic recovery is forecast to gather pace. But with this week's numbers adding a "further damper" to the outlook, according to the govern- ment – even before the impact of the Omicron coronavirus variant is felt – the near-term headwinds for Scholz are mounting and may threaten Europe as a whole. 'A winter of bad news' "We have to get through a winter of bad news," according to Holger Schmied- ing, chief economist at Berenberg, who warns of a "serious risk" that German output will shrink in the fourth quarter as supply-chain disruptions continue to restrain its manufacturing industry. But while another big wave of the pan- demic would delay the recovery, it won't derail it completely. "It's a question of whether the strong growth starts in the first quarter or the second," he said. Schmieding's remarks chime with an OECD assessment released last week. Describing how global supply snarls are holding back the export-reliant economy, the Paris-based organisation cut its German growth forecast for 2022 by half a percentage point to 4.1%, com- pared with its interim outlook released just days before the September 26 elec- tion. It still predicts expansion will pick up next year, underpinned by accelerating consumer spending, improving con- fidence and "solid" investment. But its forecasts were largely compiled before news of Omicron broke, and officials highlighted other risks – from renewed lockdowns to spiralling prices. It's the threat of inflation that Scholz is being asked about more than growth as he fills the power vacuum created by the lengthy coalition talks. He said last week that "we have to do something" if prices don't slow as analysts predict, without specifying what any action may entail. Scholz to become German leader of deteriorating economy since September vote Olaf Scholz was sworn in as chancellor of Germany yesterday EUROZONE gross domestic product (GDP) recovered to within 0.5% of its pre-pandemic level in the third quarter, but the euro fell on Tuesday as econo- mists warned continuing supply pres- sures and rising Covid infections would have a sharp negative impact on current quarter growth. e single currency was down 0.2% against the dollar at $1.1256 and lost similar amounts against both the pound and the yen. Growth maintained e third reading of quarterly GDP showed that the eurozone economy grew by 2.2% in the July–September pe- riod, unchanged from the previous esti- mate. In the previous quarter, GDP also rose by 2.2%. Compared with the same quarter a year earlier, GDP grew at an annual pace of 3.9%, slightly higher than the 3.7% measured in the previous estimate and the 3.7% expected by analysts' fore- casts, but down dramatically from the 14.4% seen in the second quarter as economies sprung back to life following lockdowns. At 3.8%, the highest rate of quarterly GDP was seen in Austria, followed by France at 3% and Portugal at 2.9%. e lowest rate of growth seen in any mem- ber state was zero, recorded by Lithu- ania. By sector, the biggest contributor to growth was household consumption, up 4.1%. Exports rose by 1.2% and im- ports increased by 0.7%. Fourth-quarter warning While the eurozone economy now stands just 0.5% below its pre-pandem- ic level, analysts warned that a weaker fourth quarter is expected as consump- tion wanes due to concerns over the fourth wave of Covid infections across the region and as some governments take restrictive measures to combat the continuing pandemic. "Business surveys, such as the com- posite PMI, have eased substan- tially and are consistent with GDP growth slowing to below 1% on quar- ter-on-quarter terms, and we do not think these have captured the full impact of the recent new virus re- strictions introduced in a number of member states," said Melanie Debono, senior Europe economist at Pantheon Macroeconomics. Senior Europe economist at Capi- tal Economics Jack Allen-Reynolds agreed. "With Covid cases rising, gov- ernments tightening restrictions, and supply problems constraining output, the economy looks set for a very weak fourth quarter," he said. German confidence fades Indeed, Germany's ZEW Index of cur- rent economic sentiment fell into neg- ative territory for the first time in six months, while the expectations index fell 1.8 points to 29.9. ZEW president Achim Wambach said: "e decline in economic expectations shows that hopes for much stronger growth in the next six months are fading." Eurozone economy grows but Q4 warnings hit euro

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