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ITB Berlin Convention:

Prof. Hans Werner Sinn

A cold wind is blowing: head of the ifo Institute on world market trends in 2016

There is a chill in the atmosphere on the world market. Ten years after the collapse of Lehman Brothers only a few EU member states have returned to pre-crisis levels. Following the bankruptcy of the US investment bank, the share indices of the BRIC nations have moved in the same direction as other stock market indicators. The main question is whether, following a brief period of consolidation, this phenomenon will lead to a resumption of the freefall from the middle of this year oinwards, and how this will be repeated on a global scale. During the ITB Future Day at today's ITB Berlin Convention a sober but not euphoric description of the world economic situation, using various indices, was provided by Hans-Werner Sinn, President of the ifo Institute for Economic Research.

Sinn expressed his doubts about the official growth figures from China: with exports declining by eleven per cent, and imports by 19 per cent, not everything can be explained by collapsing prices. That country's economy may be performing worse than it cares to admit. He regards the negative interest strategy of the ECB as "very dangerous". He is astonished that Italy is prepared to maintain high prices and wages, despite a deteriorating gross domestic product. And for similar reasons he does not believe that Greece can survive in the euro zone. The fact that high unemployment levels and economic migration ("flight ends the other side of the Turkish border, anything else is economic migration") are causing many citizens of the EU to turn increasingly to radical parties is a greater cause of insecurity than the economic situation.

Nevertheless this German economist does see some signs of stability. In Germany the construction sector is enjoying a boom comparable to that following the fall of the Berlin Wall, due to the fact that there is no other way to achieve a return on one's capital. The economy in the USA is growing vigorously (+ 5 % GDP). The weak euro is having a beneficial effect on European markets, and at a current exchange rate of approximately 1 to 1.11 US dollars it is significantly below the EU-wide average purchasing power parity of 1.29 US dollars. As a result the other side of the Atlantic is a major market for destinations in this country. And perhaps economic weaknesses will be confined to certain markets for the foreseeable future.

Isabel Bommer

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