The German Economy Ministry on Thursday slashed its growth outlook for 2020 to just 1% from 1.5% previously in the latest sign that Angela Merkel’s government needs to come to terms with the stark economic reality that confronts the world’s fourth-largest economy.
The projection for 2019 is 0.5% and fears that Germany fell into a technical recession in the third quarter are widespread.
“The downturn in the industrial economy continues. In particular, weak global trade is weighing on export-oriented German producers”, the ministry said Thursday.
So far, Berlin has been steadfast in its almost fanatical commitment to fiscal discipline amid the worst factory slump since the crisis. The “black zero” fiscal policy even managed to survive a €54 billion climate package, announced last month.
But calls for stimulus are shrill, especially considering Germany can borrow for free. The latest PMIs show the services sector is still holding up ok, but the manufacturing downturn is severe.
Factory orders, for example, had fallen for 15 straight months on a YoY basis through August.
The government tried to strike a somewhat upbeat tone on Thursday. “Domestic demand, however, remains intact [and] with the revival of international trade, the growth forces will become stronger again next year”, Economy Minister Peter Altmaier said, adding the following:
Now it’s time to roll up our sleeves. Our companies are strong, but they need more tailwind from the federal government. With my strategies for theand the , I have submitted proposals. We now need growth policy with tax relief and , market-based solutions in the , investments in future technologies and more efforts.
Last month, Goldman noted that there is, in fact, room for stimulus even within Germany’s existing fiscal framework. The bank presented a four-point rationale involving reserves set aside for special purposes outside of the main budget, the running down to zero of projected state and local government surpluses, the leeway built into the debt brake that permits small deficits and the “natural disasters/emergencies” provision.
Earlier this week, Bloomberg reported that opposition to stimulus is starting to fold under pressure. “Lawmakers from Chancellor Angela Merkel’s Christian Democrat-led group have been among the most crucial opponents of finance ministry plans to respond to an economic hit and their stance is beginning to soften”, a piece out Wednesday reads.
Bloomberg cites two sources familiar with party discussions. “Critically, the CDU caucus in the Bundestag would be ready to break its long-held commitment to a balanced budget — the much heralded ‘black zero’ — if a downturn required a more powerful reaction”.
And remember, when it comes to what can save the world, fiscal stimulus from Germany tops the list.