Business

Germany’s current economic state

https://maltabusinessnews.com/business/germanys-current-economic-state?1399 MaltaBusinessNews.com
Germany’s current economic state

Germany’s economy has indeed avoided a technical recession at the last minute following the second estimate of 3Q GDP growth. GDP growth came in at 0.1 per cent quarter-on-quarter (QoQ), from -0.2 per cent QoQ in the second quarter. On the year, the economy grew by 0.5 per cent in the third quarter.


Third quarter growth was driven by strong private (+0.4 per cent QoQ) and public (+0.8 per cent QoQ) consumption. Activity in the construction sector grew by 1.2 per cent QoQ, while investments dropped by 2.6 per cent QoQ. At the same time, net exports were positive, while inventory build-up decreased 0.7 per centage points from quarterly growth.


The strength of private consumption, in particular, remains an important anti-recession insurance for the entire economy. In fact, private consumption has been growing consecutively every quarter since the start of 2014.


One main reason why the economy has avoided recession is a long list of election promises, often criticised as not increasing the long-term growth potential of the German economy.


Over the last two years, the government has increased child allowances, pensions and study allowances as well as some tax relief and more money for health care, elderly care, and schools. For 2019, all of this has amounted to a fiscal stimulus of some 0.5 per cent of GDP.


Looking ahead, even though the German economy has avoided a technical recession, there are few signs of a looming rebound for the weakened industrial sector. In fact, the economy has fallen into a stagnation, with quarterly GDP growth averaging a measly 0.1 per cent QoQ since the third quarter of last year.


Counting on only consumption and construction to offset the industrial downturn and on a possible rebound in global trade to cover the structural changes, might be a risky gamble.


Therefore, the debate on additional fiscal stimulus will continue, not in the sense of a short-term horizon but rather in the sense of a long-term investment package, tackling the structural weaknesses of the economy.


In this regard, it was notable that the German business association, BDI, and the trade union, DGB, normally not natural companions, presented a plea for not only an investment package of €450 billion over the next 10 years but also for a more flexible interpretation of the constitutional debt brake.


€450 billion over 10 years would more than double the currently planned investment expenditures, bringing annual public investment spending to more than two per cent of GDP. In a first reaction, Chancellor Angela Merkel refuted these calls, saying that the economy would also be able to grow with the current budget plans. The waiting game continues, but surely at this juncture solely monetary stimulus might not be an effective tool.


Disclaimer: This article was issued by Maria Fenech, credit analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.


timesofmalta.com

Leave a comment