Economic Weekly

Getting Older, Not Necessarily Poorer

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Is old-age poverty a problem in Germany? Not necessarily. Source: DPA

Elation in Executive Suites

This week began with some pretty positive economic news. Fresh off raising its growth forecast for this year and the next, the Munich-based Ifo Institute for Economic Research on Monday confirmed its continuing optimism with the release of the Ifo Business Climate Index. This important barometer of the German economy rose from 114.6 to 115.1 points in June – an all-time high. “There is elation in Germany’s executive suites,” said the president of the institute, Clemens Fuest. “Demand and inventories have developed quite well. Production plans remain upbeat.”

Onwards and Upwards

The Bundesbank, in its monthly report released Monday, also revised its overall economic forecasts for the years 2017 and 2018. Based on strong private and state consumption, as well as a renewed rise in exports and increasing corporate investments, the bank’s economists raised their estimate for GDP growth from 1.6 to 1.9 percent for the current year and confirmed their prediction of 1.7 percent for 2018. At the same time, there appears to be no risk of an acceleration in the rate of inflation, as consumer prices are expected to rise 1.5 percent this year and 1.4 percent in 2018.

The central bank nevertheless warns of a potentially sharp rise in wages in the near future – but why, actually? The fact is that this country’s economic boom, with its high rate of employment, is entering its eighth year and is currently picking up speed without any signs of significant upward pressure on wages despite loud complaints about an increasing deficit of skilled workers.

A discussion marked by alarmist rhetoric in Germany.

Getting Older, Not Necessarily Poorer

Monday also saw some rather dire headlines in Germany over the presentation of an interesting study of old-age-poverty, commissioned by the Bertelsmann Foundation and carried out by the German Institute for Economic Research in Berlin and the Center for European Economic Research (Mannheim). The results of this quite solid study ought to inject some sober objectivity into a discussion that has been marked by alarmist rhetoric in Germany. And yet most newspapers simply flashed: “Dramatic Rise in Old-Age Poverty.”

The reality, however, is more mixed. As indicators, the authors cite the risks of falling into poverty and of basic financial security in old age. In the case of the former, people are said to be in danger of poverty if their available income is less than 60 percent of the average income of the population. Currently the rate of the risk of poverty for the over-65 group is 16 percent, approximately the same as for the entire population.

The rate of basic financial security (in old) age is a “hard” measure of poverty. It indicates the number of people of retirement age who are dependent on state social services. The official rate of basic financial security is currently 3.1 percent, far below the 11.9 percent of those under the age of 65 who receive public welfare, though the authors of the study put the figure for the elderly at 5.5 percent. A significant number don’t apply for benefits, the authors believe, because they are ashamed to submit to the strict examination of need that is required.

In the next 20 years, these two key measures for retirees will rise to 20 percent (risk of poverty) and 7 percent (basic financial security). Still, this study’s meticulous examination reveals that a rise in pension payments, which is currently being so vigorously demanded in heated discussions within German political circles, would contribute little to reducing the risk of old-age poverty.

Fining Google, European Style

More political consensus can be expected on a decision announced Tuesday by EU Competition Commissioner Margrethe Vestager. The European Commission demanded a record penalty of €2.42 billion (!) from Google. The reason: Google’s search machine is said to have systematically disadvantaged rivals in online product searches. If the company doesn’t end its illegal practices within 90 days, it will face additional penalties amounting to as much as 5 percent of the average daily revenues of the parent company, Alphabet. The money would enter the coffers of the EU.

I hope that this week we have once again succeeded in offering you new and interesting information.

To contact the author: ruerup@handelsblatt.com

 

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