Sluggish growth, private component factories, skyrocketing energy costs, the future of public spending: the new German government has not even taken office yet and economic challenges are already on its agenda. The outgoing government of Angela Merkel presents Wednesday, October 27 its new growth forecasts for 2021, expected significantly revised downwards compared to the estimates of the spring (3.5%). In Europe’s largest economy, worrying indicators follow one another like signals addressed to the three parties – Social Democrats, Greens and Liberals – which are currently negotiating the formation of a coalition.
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A week ago, experts from the main economic institutes had already set the tone, now counting on a GDP increase of 2.4% in 2021. Main cause: the shortages of components and raw materials which are hampering the post-covid recovery of the country particularly dependent on its powerful exporting industry. The order books of car or machine tool manufacturers are full but production lines are idling, or are forced to stop, while the increase in the price of wood, plastics, metals, gas weighs down. the bill.
In September, German manufacturers saw their costs climb by 14.2% over one year. They had not experienced such an increase since October 1974, that is to say following the first oil shock. Industrial production plunged 4% in August over one month. Exports, which have continued to recover since the first wave of Covid-19, fell 1.2%. In the last quarter, “The German economy shouldn’t do better than stagnate”, predicts Andrew Kenningham, an economist at Capital Economics. “With the obvious risk that it will not return to its pre-crisis level (du Covid) This year”, warns Carsten Brzeski, analyst at ING. The morale of German entrepreneurs fell in October for the fourth month in a row.
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It is “A clue for the emerging coalition” who will owe “Avoid as much as possible imposing additional burdens on the economy”, judge Jens-Oliver Niklasch, economist at LBBW bank. If experts are betting on a resumption of activity in 2022, provided that the global crisis in supply chains is resolved, the deterioration of the economy weighs on the political negotiations underway in Berlin. The preliminary government agreement between the three parties puts at the top of the priorities a massive investment plan, essential for Germany to decarbonize and digitize its economy.
The amount of expenditure to be incurred in the next decade is estimated at between 30 and 50 billion euros per year, according to various estimates. Future government partners have pledged to demonstrate “creativity” to free up the necessary resources, but the path is narrow: they have undertaken not to increase or create new taxes; they also want to return to the device of “Debt brake”, which prevents the state from borrowing more than 0.35% of its GDP each year. This rule has been suspended, as the constitution allows, to face the coronavirus pandemic, with hundreds of billions of euros in public aid.
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Before returning to orthodoxy in 2023, several voices, including in the camp of adherents of rigor, plead for a budgetary sleight of hand: to inflate as much as possible the envelope of new loans to be contracted next year, last year of suspension of the debt brake, to build up a fund allocated to investments for the future. Another avenue: the German government would not contract loans for its own budget, but on behalf of public structures, such as the Public Investment Bank (KfW), recorded as expenditure “Extra-budgetary”.
The green co-boss Robert Habeck goes so far as to imagine new state-owned enterprises, dedicated to modernization projects such as the extension of the network of charging stations for electric cars. Time is running out, argues the powerful metalworking union IG Metall, which calls on workers to demonstrate across the country on Friday. “The next federal government can preach modernization – but it must quickly follow through on these announcements of action”, Judge Jörg Hofmann. “So that Germany remains an industrial country and because hundreds of thousands of jobs depend on it”.
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