The German economy has structural problems – the IMF (International Monetary Fund) has published a new, quite pessimistic, forecast for the German economy for 2024. It predicts Germany will see minimal growth of 0.5 percent – which would put Germany at the bottom of the list of the six economic areas and 16 countries analyzed by the IMF. Politicians are also desperately looking for a solution so that the economy can be given a boost again. Federal Minister of Economics Habeck has now put forward a proposal that is causing some long faces: a special fund financed by debt is intended to relieve the burden on the economy. But is this the right way?
Impending recession
At the end of 2023, the German economy shrank. The Federal Statistical Office announced that gross domestic product fell by 0.3% in the fourth quarter compared to the previous quarter. A decline is also visible in direct comparison with the last quarter of 2022: by 0.2 percent. If the German economy were to shrink for the second time in a row in the current first quarter of 2024, this would result in a recession according to the scientific definition.
Factors affecting the economy
Companies in almost all sectors of the economy are complaining about falling demand, said Timo Wollmershäuser, head of economics at the ifo Institute. Incoming orders are declining, and waves of cancellations, particularly in the area of residential construction, are sweeping across the country, he said.
Due to inflation, central banks in both Europe and North America have raised key interest rates, making financing investments much more expensive. The economy is also being affected by special factors such as the currently extremely high level of sick leave, the Deutsche Bahn strike and the exceptionally cold weather in January.
There is no sign of a trend reversal yet.
Habeck’s proposal
According to the coalition agreement, the debt brake is to be adhered to. According to the Minister of Economic Affairs, a special fund that would be financed with debt could be a possible way out of the current situation. Companies could take advantage of special discounts and additional depreciation options. However, he did not specify a specific volume for this special fund.
Reactions to the special fund proposal
This proposal was promptly rejected within the coalition. FDP parliamentary group vice-chairman Lukas Köhler argued that although the framework conditions for economic growth in Germany needed to be improved, he believed that taking on more debt was the wrong approach.
The CSU’s head of the party, Alexander Dobrindt, also clearly rejected the proposal. He told the DPA that the country does not need new special debts, as these would only lead to “extending the traffic light misery”. In his eyes, companies need an expansion of the energy supply, cuts in corporate taxes and less bureaucracy.
Jens Spahn directed his criticism at Habeck as a person and at his policies themselves – before Robert Habeck would offer talks to the Union, he should first build cohesion within his own coalition. Habeck has been in power for two years – with the result of the recession in Germany. For Spahn it is clear: Germany’s economic position is in danger.
AfD MP Wolfgang Wiehle described the energy transition as unaffordable. For him, green is the political colour of decline.
Our questions to you: What do you think about Habeck’s proposal? Would a debt-financed special fund be the “rescue” for the German economy? What other options could there be to relieve the burden on companies? In your opinion, what are the reasons why Germany is the only major western industrial nation to have shrunk economically in 2023?
We look forward to your answers
Best wishes and a good start to the weekend!
Your gutefrage team
Sources:
https://www.br.de/nachrichten/deutschland-welt/habeck-will-wirtschaft-mit-sondervermoegen-ankurbeln,U33JVDu
https://www.handelsblatt.com/politik/konjunktur/deutsche-wirtschaft-2024-iwf-erwartet-nur-05-prozent-wachstum/100009708.html
https://www.tagesschau.de/wirtschaft/konjunktur/bip-deutschland-q4-100.html
