Our Country Focus this month takes a look at Russia, South Africa and Turkey. Where as in Russia growth will slow only marginally in the second half of this year and we expect full-year growth of 7.5 %, in South Africa the energy crisis and weak private consumption are casting a pall on the economy. South Africa is likely to record GDP growth of just over 3 % in 2008. The Turkish economy has so far defied all the difficulties and is growing solidly, but the Achilles‘ heel is the large external financing requirement. All three countries are suffering from record high inflation.

In our Special Focus we examine to what extent the Riester pension can serve as the key to avoiding old age poverty. The Riester pension has recently been unfairly discredited as not worthwhile for low earners. We come to the conclusion that the Riester pension is also worthwhile for low earners and is pivotal to avoiding poverty in old age. By contrast, other proposals, such as rolling back pension overhauls oreven the introduction of minimum wages, are counter-productive.

And, of course, you will also find our monthly reports on the USA, the euro area and Germany.

Enjoy!

 

Tax rebates buoy consumption 

Thanks to the stimulus package, the US economy is likely to have grown modestly in the second quarter as well. The trend in energy prices continues to cast a major question mark over the economic outlook. An acceleration in growth in the second half of the year no longer looks likely.

With downward revisions of economic growth forecasts and upward adjustments to inflation estimates, the situation is becoming increasingly difficult for the ECB. A further tightening of the interest-rate screw looks unlikely.

The price of oil has continued to soar recently. It is now, without doubt, the greatest threat to the economy. The longer it remains at the current level – or even rises higher – the greater the danger that the economic summer break will not remain just that.

Inflation has not only staged a comeback in the industrial countries: it has also returned in the emerging economies. In fact, in many countries it is already well into double figures, while in others it is only below that level thanks to government price subsidies.

The specter of old age poverty is looming large in Germany. Pension reforms, high unemployment and low earned incomes could conspire to produce extremely meager pension incomes foran ever-larger share of pensioners in the future. One way of avoiding poverty in old age is by making additional privatevfinancial provision, especially with Riester pensions (a statesubsidized privately funded pension scheme named for the laborminister who introduced it). Recently, however, this scheme has been falsely discredited by claims that it is not worthwhile for low earners. In the following we show that Riester pensions do pay off for lower earners as well and that they are key to avoiding old age poverty. Other proposals, such as rolling back pension overhauls or even the introduction of minimum wages, are counter-productive.