Germany: Take investment boost with caution – ABN Amro

Fresh rumours about a fiscal impulse in Germany, according to a Bloomberg report, ‘an official familiar with the plan’ had signalled that Germany’s finance minister Olaf Scholz was considering to temporarily suspend Germany’s debt brake rule to allow for extra investment spending by municipalities, economists at ABN Amro report.

Key quotes

“The news was well-received by financial markets as Germany has been put under a lot of pressure by the ECB to ease fiscal policy, considering that it is one of only a few countries that has a surplus on the budget balance and a debt ratio of below 60%.” 

“According to the current plans, fiscal policy will be modestly expansionary in Germany this year and the next. The current projections are for a decline in the structural budget surplus from around 1% in 2019 to 0.5% in 2021. This means that there is room for extra stimulus of at least 0.5% GDP (around EUR 18bn) in 2020-21.” 

“There have been rumours in the press about significant extra spending by Germany’s government before, while Germany’s finance minister has repeatedly said that he would only consider this in case of an economic crisis. Therefore, we remain cautious in forecasting an investment boost that would considerably improve the eurozone economic outlook.”