Stop for growth in Germany

Germany saw its economic activity decline in the second quarter, reviving fears of recession and supporting supporters of a recovery plan with a stop to the policy of “zero debt”.

The Gross Domestic Product (GDP) of Europe’s largest economy shrank 0.1% from the previous quarter, the National Statistics Office said on Wednesday.

This evolution can be explained by the lower performance of German exporters who suffer from the international environment, which has been damaged by trade tensions.

This poor performance follows a 0.4% rebound in the first quarter. If the country shows a new contraction in the current quarter, it will enter what is technically defined as a recession.

Germany had escaped by a hair in the second half of 2018.

– Signals with red –

With the decline in GDP in the spring, the country joins Britain, whose economy also contracted from April to June (-0.2%). In the eurozone, the model pupil of the last decade is now a shambles, doing less well than Italy (0%) and France (+ 0.2%) in the past quarter.

Layoff plans are increasing, the pace of job creation is slowing down and all economic signals are in the red: orders for machine tools, the spearhead of the economy, have fallen by 22% over one year between April and June, said Tuesday the federation of the sector.

“Trade disputes, global uncertainty and the troubled auto sector have finally put the German economy on their knees,” says Carsten Brzeski, an economist at ING Bank.

And the situation could worsen in the third quarter. “The door is wide open to a technical recession, two negative quarters in a row,” said economist Klaus Borger of the KfW Institute.

The German government is currently on 0.5% growth this year, a figure already historically low, and the International Monetary Fund on 0.8%: a clear blow from the 2.2% of 2017 and 1.4% last year.

– Recovery plan? –

This gloomy context has revived in Germany the budgetary debate on a stop of rigor and the need for a recourse to the indebtedness to stimulate the conjuncture. Especially since the public coffers are full with budget surpluses for years.

“The time seems more than ever for the government to finally initiate a change of course,” insists the economist Claus Michelsen, of the Berlin Institute of Business DIW.

Several executives of the Social Democratic Party, partner of the government coalition with the conservatives of Angela Merkel, have just relaunched the debate by advocating a recourse to indebtedness to finance a plan to fight against global warming.

But the Conservatives are opposed and intend to maintain the current policy of ensuring a federal budget at least balanced.

Chancellor Angela Merkel acknowledged Tuesday that the German economy was going through “a difficult phase” but rejected the idea of budget deficits to finance any kind of recovery plan.

She said she did not see “for the moment (…) the need for a cyclical package”.

The country has also anchored fiscal discipline in its constitution. It is guided by the so-called debt brake mechanism (Schuldenbremse), which greatly limits any room for maneuver in this area.

Several European partners in Germany, such as France, but also the IMF or the European Commission have long asked the country to loosen the purse strings to spend more and support sluggish growth.

Donald Trump’s United States complains about Germany’s lack of military spending and urges it to use its surpluses for it. Merkel’s Christian Democratic Party is not opposed to it, but the Social Democrats do not want to hear about it.

For one of the economic experts who advises the German government, Christoph Schmidt, quoted by the weekly Der Spiegel, the goal of keeping an annual budget in equilibrium could nevertheless be called into question “in the event of a marked downturn in the economy. “

Source: Seychelles News Agency