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Sat, 25 Jan 2020 23:04 GMT

German Economy Narrowly Avoids Recession


7Dnews London

Thu, 14 Nov 2019 12:14 GMT

The German economy narrowly avoided slipping into recession in the third quarter of 2019 as spending by consumers, the state and construction caused a 0.1% quarterly expansion, Reuters reported.

On an annual basis, the gross domestic product (GDP) of Europe's largest economy rose 0.5% from July to September following a 0.3% expansion in the previous three months, according to seasonally adjusted figures from the Federal Statistics Office, released on Thursday November 14th.

"The German economy got away with a black eye: the technical recession could be avoided," DekaBank analyst Andreas Scheuerle said. However, he added that it was still too early to give the all-clear, as the economy is suffering from enormous global political uncertainty. He also observed that the flagship German industry, the automobile sector, no longer appears to be running smoothly.

The reason may be partly due to tariff disputes sparked by President Trump's trade policies and business uncertainty linked to the UK’s decision to leave the European Union. Manufacturers, whose exports have been a bedrock of German economic strength for decades, are struggling more and more with weaker foreign demand for their high-quality products.

One remedy is fiscal stimulus. Finance Minister Olaf Scholz has suggested abolishing the Soli income tax surcharge for most employees from 2021, which could boost household spending by providing a stimulus worth about €10 billion a year.

Despite criticism from Chancellor Angela Merkel's conservative bloc, lawmakers passed the plan with the support of the majority of the ruling coalition, although higher earners will continue to pay the 5.5% surcharge.

However, the BDI industry association called on Berlin to abolish the surcharge for all employees and bring the move forward to 2020 - a policy change which would cost the government another €10 billion.

"The federal government must do more to increase public investment and improve conditions for private investment," BDI Managing Director Joachim Lang said.