BCN-01-02 Looming recession to weigh on German forecasts

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Looming recession to weigh on German forecasts

BERLIN, Oct 17, 2019 (BSS/AFP) – Berlin will publish Thursday updated
growth forecasts for Germany that are likely to reveal a still weaker outlook
than before, but it remains hesitant to stimulate its own and partner
economies.

In the economy ministry’s predictions for growth in the gross domestic
product, presented around 2:00 pm (1200 GMT), observers are already bracing
for a bleak picture.

The news weekly Der Spiegel reported that GDP expansion next year is
forecast to reach just 1.1 percent, compared with 1.5 percent predicted
earlier this year.

Government economists are expected to stick to a projection of 0.5 percent
growth this year, the magazine added, a fraction of the 1.4 percent achieved
in 2018 or 2.2 percent the year before.

Germany is already believed to be in a technical recession — defined as
two successive quarters of negative growth.

Economic output fell by 0.1 percent in April-June, and July-September
figures slated for release next month are expected by the Bundesbank (central
bank) to show another contraction.

The first recession in nine years marks the end of a post-2008 golden
decade for Europe’s largest economy, which has enjoyed steady growth buoyed
by both exports and domestic demand.

But the country’s massive trade surplus — a source of national pride for
many media outlets — has turned into a weakness since President Donald Trump
launched his US-China trade war.

Other risks to international commerce, like Brexit uncertainty, have also
weighed on Germany.

Increasing numbers of large firms are announcing layoffs or slashing
workers’ hours, job creation is slowing and economic indicators point towards
slowdown.

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– Target ‘black zero’ –

With economic headwinds mounting, calls have grown at home and abroad for
Germany to loosen the straps of its self-imposed fiscal straitjacket.

Economists, politicians and commentators are discussing whether it might be
time to abandon Berlin’s longstanding “black zero” policy of no new debts,
allowing government to spend and stimulate growth.

From Thursday, G20 finance ministers gathering in Washington and the IMF
will likely press their German counterpart to open the cash taps — offering
a potential boost to neighbours as well.

“If the current economic slowdown in Germany leads to a rethink of the role
of expansionary fiscal policies and reinterpreting the ‘Black Zero’, both the
German and the eurozone economy would benefit,” said ING bank economist
Carsten Brzeski.

“When, if not now, is the perfect time for investing in digital and
traditional infrastructure projects given negative interest rates and high
investment needs?” he asked.

So far, Chancellor Angela Merkel’s government has resisted such calls, even
if the finance ministry has said “Germany has the firepower for a real
crisis” with stimulus and structural reform plans at the ready if needed.

For now, the government is still taking a cautious stance, highlighting
that a shallow “technical” recession doesn’t justify the high levels of
government intervention seen during a deeper downturn.

What’s more, opponents of simply throwing more money at Germany’s problems
note that even massive government budget surpluses raked in during the good
years have not been used up.

“Please, take the money!” finance minister Olaf Scholz told municipalities,
federal states and investors last month.

Scholz pointed to 15 billion euros ($16.5 billion) available in green and
infrastructure funds and subsidies he said had often been held up by slow or
overly complex bureaucratic processes.

BSS/AFP/HR/0910