by Manuel Alvarez-Rivera, Puerto Rico
Sunday's general election in Serbia, which had been widely anticipated to be a tight race between the ultra-nationalist Serbian Radical Party (SRS) and For European Serbia - a coalition of moderate, pro-European Union parties headed by the Democratic Party (DS) - had a completely unexpected outcome, with the pro-EU parties easily prevailing over SRS, according to both estimates published by the Centre for Free Election and Democracy (CeSID) and preliminary results issued by Serbia's Republic Electoral Commission.
The results contradicted findings from opinion polls that suggested the Radicals would top the poll, largely by playing on widespread anger in Serbia over Western backing of the former province of Kosovo's unilateral declaration of independence last February 17. However, the EU's offer of closer ties with Serbia - which included a pre-membership agreement and offers of free visas to Serbs by seventeen European countries - clearly helped the pro-European parties, which repeatedly warned a Radical victory would lead to Serbia's renewed isolation.
The election also dealt a blow to the conservative Democratic Party of Serbia-New Serbia (DSS-NS) alliance of outgoing Prime Minister Vojislav Kostunica, which continued to lose ground and came in a poor third place. Kostunica's center-right coalition government with DS and the right-liberal G-17 (now part of the pro-EU coalition) came apart last March over the issue of suspending ties with the EU in the aftermath of Kosovo's independence, triggering Sunday's parliamentary poll - Serbia's third nationwide vote in fifteen months - three years ahead of schedule. All three ruling parties were (and remain) staunchly opposed to Kosovo's independence, but DSS-NS - along with the opposition SRS - advocated a hard-line stand against Europe over the issue.
While the leftist Socialist Party of Serbia (SPS; originally the party of the late strongman Slobodan Milosevic) and its allies scored significant gains in the election, at the time of writing it remained unclear if the left-of-center Liberal Democratic Party (LDP) - the only party that has accepted the independence of Kosovo - would retain its parliamentary representation by securing at least five percent of the vote. CeSID's projection has the party narrowly crossing the threshold, but LDP stood just below five percent in preliminary election results issued on election night (subsequent official results placed the party above the threshold, as noted under Update).
Irrespective of the LDP result, the pro-EU parties will almost certainly finish well short of an absolute majority in the new National Assembly (Parliament) - whose 250 seats are allocated by proportional representation on a nationwide basis - and SPS could end up holding the balance of power. It was originally expected the party would join forces with SRS and DSS-NS, but according to CeSID's estimate the three groups would have an overall majority of just four seats in the event LDP actually secured parliamentary representation, and the Socialists have not ruled out reaching an agreement with the pro-European parties to form a stronger coalition government.
Update
Serbia's Republic Electoral Commission reports that final results of the May 11, 2008 parliamentary elections were as follows:
For European Serbia - 1,590,200 votes (38.4%), 102 seats
Serbian Radical Party (SRS) - 1,219,436 votes (29.4%), 78 seats
Democratic Party of Serbia-New Serbia (DSS-NS) - 480,987 votes (11.6%), 30 seats
Socialist Party of Serbia-Associated Pensioners Party-United Serbia (SPS-PUPS-JS) - 313,896 votes (7.6%), 20 seats
Liberal Democratic Party (LDP) - 216,902 votes (5.2%), 13 seats
Hungarian Coalition - 74,874 votes (1.8%), 4 seats
Bosniak List for the European Sandzak - 38,148 (0.9%), 2 seats
Coalition of the Presevo Valley Albanians - 16,801 votes (0.4%), 1 seat
Others - 99,992 votes (2.4%), no seats
In addition, there were 88,148 invalid ballots, or 2.1% of the total number of votes cast. The election had a 61.4% voter turnout, slightly up from 60.6% in 2007, and nearly identical to the turnout figure for the first round of voting in last January's presidential election.
Following the election, SRS, DSS and SPS, which together commanded an overall parliamentary majority of six seats, announced they had reached an agreement "in principle" over the future administration. However, United Serbia (JS) - one of the Socialists' junior partners - subsequently called for the suspension of talks with SRS and DSS, due to conflicting views over the Stabilization and Association Agreement (SAA) with the European Union. In due course, the Socialists did an about-face and reached an agreement with the pro-EU parties, paving the way for the formation of an eleven-party coalition government headed by outgoing Finance Minister Mirko Cvetkovic, with Socialist leader Ivica Dacic as First Deputy Prime Minister and Minister of the Interior. In July 2008, the new government - which also includes several small ethnic minority parties - narrowly won a vote of confidence in the National Assembly.
Sunday, May 11, 2008
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Special Feature, The German Economy At A Glance
Welcome to the Global Economy Matters Blog. Below you will find the normal chronological blog posts. But first here is our Monthly Special Feature which in January 2008 focuses on Germany. Here you will find charts which provide background data on the German economy. We hope these will be of some help to the first time reader here, making it easier to contextualise, assess and get to grips with the general argument being presented on the blog. The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of remaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time.
Since this phenomenon is also to be observed in the the two other societes with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here.
Basically what we can observe as societies move above the 40 median age mark are a number of stylised facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice.
We hope you will find the background data presented here useful in assessing the argument which we are presenting on this blog, which is basically that a key component in the longer term growth stagnation from which Germany is suffering has its roots in the underlying demographics. Basically and in the long run (possibly with a 30 year lag) fertility does matter. Please click on thumbnails for better viewing.
What follows is a very rough and ready attempt to describe in broad brush strokes how the contemporary German economy actually works. First off, and as is well known, German society is ageing, and at the same time the German population has started declining. Not only is Germany's median age rising, the proportion of the population in the key 25-49 age group is now falling.
As can be seen from the chart this crucial age group touched its highpoint in 1997/98. This could be thought of as the moment of maximum capacity for the German economy since it includes the crucial 25 to 40 household-former, first-time-homebuyer group. In terms of credit expansion, it is this group which drives a significant part of internal demand.
The age group also includes another important group, the 35 to 50 years one. This group drives an economy in productive terms, since these are the prime age workers. If you think of a society as a 100 metres sprint athlete, then there is an age when this athlete is at the maximum of his or her running potential, an age after which each time they can only run the 100 metres more slowly.
Well a society is the same in terms of its collective economic potential, without addressing underlying issues either through fertility or immigration, it can only move forward more and more slowly. Consumption becomes flat, and GDP growth - gioven the external dependence - fragile.
Private consumption has hovered pretty close to the 60% mark for many years now, while government consumption - after moving sharply upwards as a total share in the first half of the 1970s has subsequently remained pretty constant, moving around the 19% of GDP mark. The big difference has been in the importance of fixed capital formation (GFCF) which reached from 1975 to 2000hovered around the 22 - 24% of GDP mark.
Prior to 1975 GFCF was at a much higher level, while post 2000 it has dropped substantially And So what we can see is that the year between, say, 1975 and 2000, when GFCF remaind a more or less constant share of GDP, constituted - to use the language of neo-classical economics - the constant growth period of the German domestic economy.The years prior to 1975 were the convergence, or "catch-up" years
And especially the 1960s, after Germany finally broke out of the destruction and devastation of WWII - while the years after 2000 constitute what the neo-classicists would call the "balanced growth period", although as we can see, it isn't very balanced, and there certainly isn't a steady state.
2008 Forecasts: There is a consenus at the present time that the German economy is slowing. Where there is no real consensus is over the rate at which it is slowing and where and when it will settle. It is clear that GDP growth in 2007 will be below the heady 3.1% annual rate achieved in 2006. The OECD last December revised their 2007 German forecast down to 2.6%, and their 2008 one down to 1.8%. The IMF in their October World Economic Outlook forecast growth for 2007 at 2.4%, slowing to 2% in 2008. Morgan Stanley's Elga Bartsch, while optimistic that the German economy will whether the credit crunch better than most (and here she may well be right) is somewhat more sanguine, putting 2008 growth at 1.5%. In general though I rather doubt her overview that "Germany could well be on the way to becoming the new growth locomotive in Europe." and especially her suggestion that "the phase of underperformance in terms of GDP growth, which has plagued Europe’s largest economy for years, is clearly over." Unfortunately, what we are arguing on this blog is that Germany's GDP growth rates since the mid 1990s are not some special kind of "underperformance", but what can be expected from a society with a rapidly rising median age which is increasingly dependent on exports rather than domestic consumption for growth.
The EU commission in it's November 2007 forecast was also convinced that the German economy was now on a "solid growth path", forecasting 2.5% growth for 2007 and 2.1% for 2008.
I personally will be very surprised if we see growth in the region of 2% for the German economy in 2008, and I even consider the 1.8% from the OECD and 1.5% from Morgan Stanley still on the high side given the extent of downside risk. Basically the reasonably favourable depreciation rules which currently apply to German investment have been changed as of 1 January 2008, and we might reasonably expect to see some sort of impact on investment comparable with the negative shock which hit private domestic consumption following the VAT rise on 1 Jan 2007. In addition all the indications suggest that German consumption will continue to be weak in 2008. So if consumer consumption is at best flat, governemnt consumption equally so, and investment and construction weakening, we are simply lefy with export growth, and here the outlook is definitely more negative in 2008 than it was in 2007. The Spanish economy (one important German customer) is visibly wilting by the day, as is the UK (another big customer), but it is to Eastern Europe we must look for the biggest impact on German exports of any correction in 2008. Just one data point should suffice, Germany exports roughly the same value of goods to the Czech Republic (and more to Poland) as it does to China. This means that Geramny is proportionately not that exposed to any slowdown in China, but hugely exposed to any sudden shift in growth and demand in the East of Europe.
So I would say, that on current data, 1% growth in Germany in 2008 look a reasonable estimate at this point, but that this needs to be taken to mean with considerable downside risk. Germany is now tremendously dependent on what happens elsewhere, and until what does actually happen elsewhere becomes clearer it is difficult to be more precise on Germany.
The only apparent bright spot on the horizon is employment, but I am dubious that in the context of Germany's ageing workforce this will work through as some are hoping, as I expain at some considerable length in this post here. My opinion is that Germany will enter recession at some point during 2008, and that we may well have 2 consecutive quarters of negative growth. The continuing high euro will maintain pressure on German exports, and high oil and food prices will maintain pressure on the inflation front, at least in the first half of 2008. The ECB will probably switch stance towards rate reductions at some point, but since, as Elga Bartsch among many others so eloquently argues German internal consumption and investment are not especially dependent on credit conditions, easing from the ECB may not have as much impact as one would hope for.
Key Posts For Understanding The Present Path of the German Economy
Is The German Economy Heading For Recession in 2008?
Employment and Unemployment in Germany January 2008
Germany Economy, What Price the VAT Effect Now!
The German Economy, Employment, Export Shares and Age Structure
Structural Aspects of German Export Dependence
Does NeoClassical Steady State Growth Really Exist?
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