Germany – 2019-2020 Scenario : Q3-2019 Outlook
> Focus 1: a more expansive budget?
> Focus 2: the climate plan
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> The basis of our scenario
Germany is expecting a decline of its quarterly growth in Q3, which would constitute a second consecutive quarter of GDP decline and therefore a technical recession. The extended contraction of the industrial sector continues to penalize growth, which at the same time faces rising protectionist risk and the risk of disorganized Brexit, both of which affect trade and Investment.
German budgetary surpluses look set to reduce due to the decline in economic activity (fewer tax receipts) and the rise in spending automatically increased by the growing cost of retirement benefits and new measures introduced by the coalition. The fiscal effort was substantial in 2019 in Germany. It resulted in a reduction in the structural surplus of 0.7 points of GDP. For 2020, the expected reduction in the structural surplus would represent a fiscal stimulus of 0.3 points of GDP. The 2020 budget therefore remains expansionary but less expensive than the 2019 budget. However, despite this Germany is likely to have a still positive structural balance. Reducing the structural balance to zero would generate an additional fiscal stimulus of 0.5 points of GDP ("zero deficit" effect). The country can also widen its structural deficit within the limits of the debt brake rule. This would help support the economy by an additional 0.4 points of GDP ("debt brake" effect). Overall, Germany therefore has the leeway to generate a fiscal stimulus amounting to 1.2 points of GDP in 2020.Philippe VILAS-BOAS, Economist