Socialism Drives Europe to Recession

Socialism Drives Europe to Recession

Berlin will publish Thursday updated growth forecasts for Germany that are likely to reveal a still weaker outlook than before, but it remains hesitant to stimulate its own and partner economies.

In the economy ministry’s predictions for growth in the gross domestic product, presented around 2:00 pm (1200 GMT), observers are already bracing for a bleak picture.

The news weekly Der Spiegel reported that GDP expansion next year is forecast to reach just 1.1 percent, compared with 1.5 percent predicted earlier this year.

Government economists are expected to stick to a projection of 0.5 percent growth this year, the magazine added, a fraction of the 1.4 percent achieved in 2018 or 2.2 percent the year before.

Germany is already believed to be in a technical recession — defined as two successive quarters of negative growth.

Economic output fell by 0.1 percent in April-June, and July-September figures slated for release next month are expected by the Bundesbank (central bank) to show another contraction.

The first recession in nine years marks the end of a post-2008 golden decade for Europe’s largest economy, which has enjoyed steady growth buoyed by both exports and domestic demand.

But the country’s massive trade surplus — a source of national pride for many media outlets — has turned into a weakness since President Donald Trump launched his US-China trade war.

Other risks to international commerce, like Brexit uncertainty, have also weighed on Germany.

Increasing numbers of large firms are announcing layoffs or slashing workers’ hours, job creation is slowing and economic indicators point towards slowdown.

– Target ‘black zero’ –

With economic headwinds mounting, calls have grown at home and abroad for Germany to loosen the straps of its self-imposed fiscal straitjacket.

Economists, politicians and commentators are discussing whether it might be time to abandon Berlin’s longstanding “black zero” policy of no new debts, allowing government to spend and stimulate growth.

From Thursday, G20 finance ministers gathering in Washington and the IMF will likely press their German counterpart to open the cash taps — offering a potential boost to neighbours as well.

“If the current economic slowdown in Germany leads to a rethink of the role of expansionary fiscal policies and reinterpreting the ‘Black Zero’, both the German and the eurozone economy would benefit,” said ING bank economist Carsten Brzeski.

“When, if not now, is the perfect time for investing in digital and traditional infrastructure projects given negative interest rates and high investment needs?” he asked.

So far, Chancellor Angela Merkel’s government has resisted such calls, even if the finance ministry has said “Germany has the firepower for a real crisis” with stimulus and structural reform plans at the ready if needed.

For now, the government is still taking a cautious stance, highlighting that a shallow “technical” recession doesn’t justify the high levels of government intervention seen during a deeper downturn.

What’s more, opponents of simply throwing more money at Germany’s problems note that even massive government budget surpluses raked in during the good years have not been used up.

“Please, take the money!” finance minister Olaf Scholz told municipalities, federal states and investors last month.

Scholz pointed to 15 billion euros ($16.5 billion) available in green and infrastructure funds and subsidies he said had often been held up by slow or overly complex bureaucratic processes.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.