Germany: Finance minister plays down the need for extra fiscal stimulus – ABN AMRO

According to reports in the German press, Germany’s finance minister Olaf Scholz has stated that Germany was prepared and able to counter an economic crisis with ‘many, many billions of euros’, but that that he did not consider Germany to be in an economic crisis, notes Aline Schuiling, senior economist at ABN AMRO.

Key Quotes

“According to Mr Schulz the German economy had cooled down mainly due to the weakening of the global economy and the consequences of the uncertainties related to Brexit. Mr Scholz repeated that the federal budget would be balanced and that no new debt would be issued next year, as planned. The draft 2020 budget (presented in March 2019), includes a rise in federal government spending by 1.7%, mainly by raising support for low and middle income families and by higher spending on defence and infrastructure.”

“Although government income probably will be lower than projected due to the economic downturn, reports in the German press suggest that lower tax income could be largely compensated by lower interest payments on government debt next year.  Based on early indications, we think the fiscal stimulus will be just 0.3% GDP next year compared to 0.5% GDP this year.”

“According to leaks to the press, Germany’s government is considering to set up special agencies that could take on new debt to invest in climate protection or infrastructure, without breaking the national rules for a balanced budget.”

“In other words, the government might give more clarity on its plans to set up any special funds on 20 September.”