The German economy is experiencing a tentative revival after barely escaping recession last year, with the government raising its forecast for growth to 1.1 per cent this year as international trade tensions ease.
Peter Altmaier, economy minister, said the recovery had reached a “turning point”. “After two difficult years when we had to revise down our forecasts, and growth rates were very low, we are now seeing a silver lining on the horizon,” he said.
The government is also stepping up investment to €162.4bn over the next four years, one-third more than in the previous parliament, the economics ministry said.
Germany’s economy has been growing for the past 10 years, the longest growth phase since the mid-1960s, amid surging exports. Unemployment is at its lowest level since German reunification in 1990.
But the pace of expansion has slowed significantly in recent years, falling from 1.5 per cent in 2018 to 0.6 per cent last year — the slowest rate in six years.
Germany narrowly avoided a technical recession last year as gross domestic product fell in the second quarter and grew just 0.1 per cent in the third.
Industry has been hit by the US-China trade conflict and fears of a hard Brexit. The structural transformation of the German car sector, which is in the midst of an expensive shift to electric vehicles, has also been a big drag on the broader economy. A recent report said the change could cost Germany 400,000 jobs over the next decade.
Mr Altmaier, whose ministry had previously forecast growth of just 1 per cent this year, said the economy had “two faces”, with growth rates of between 2 per cent and 5 per cent for construction and services while industrial companies, particularly carmakers and their suppliers, were struggling.
This year growth will be pushed higher because Germany has more working days this year. On an adjusted basis growth is forecast to be 0.7 per cent.
The minister said the unemployment rate would remain stable at 5 per cent this year, with the number of people in work continuing to rise to 45.4m. He said higher wages and a cut in social security contributions and income tax would boost domestic demand, which has become the main driver of the German economy.
Mr Altmaier said the planned increase in investment showed the government had plenty of fiscal scope despite its strict pursuit of balanced budgets — the so-called “schwarze Null” or black zero policy.
However the minister reiterated his demand for a cut in corporate taxes, a demand that has been resisted by Olaf Scholz, the Social Democratic finance minister, as well as for lower energy prices and a cap on social security contributions.
Germany’s main business lobby, the BDI, which backs Mr Altmaier’s call for tax reform, urged the government “not to sit back and relax”. “There’s little point in hiding behind the weakness of the global economy,” it said. “That is no excuse for the meagre growth prospects for 2020.”
It said Germany was “falling behind” in terms of energy costs and taxes and should increase investment in energy, telecommunications and transport networks.
The BDI urged the government to simplify and speed up planning processes to ensure that money earmarked for investment was spent.
Also on Wednesday, the German cabinet passed a draft law on the country’s exit from coal-fired power generation by 2038. The law foresees compensation payments of €4.35bn for utilities such as RWE, which will close some of their coal plants early.
The plan means Germany will end the use of nuclear and coal power at the same time, sharply increasing its dependence on renewable sources of power such as wind and solar. Berlin wants to meet at least 65 per cent of its electricity needs with renewable power by the end of this decade.
Source: Economy - ft.com
