German Economics Minister Sigmar Gabriel ruled out on Tuesday easing the government’s tough fiscal rules to help stimulate the economy, despite slashing growth forecasts.
Chancellor Angela Merkel has been under pressure from within her ruling coalition to abandon plans for a balanced budget next year with no new debt to help bolster Europe’s biggest economy as fears that it could be sliding back into recession grow.
“There is absolutely no reason to be alarmist,” Gabriel told a press conference in Berlin. “I can’t think of any argument to say Germany is in recession or that we need to abandon our debt plans.”
The German government is sticking “to its goal of a federal budget without new debts – the famous ‘black zero,” he said. This would be Germany’s first balanced budget since 1969.
Gabriel also waved off calls from Germany’s key European allies such as France and Italy to pull reverse its insistence on far-reaching fiscal reforms to give them room to boost growth and head off stagnation in the 18-member eurozone.
“More debts in Germany do not create growth in Italy, France, Spain or Greece,” said Gabriel setting out the government new growth projections.
Instead of a previously forecast 1.8 per cent, the government now expects the economy to expand by 1.2 per cent this year as the eurozone’s faltering economy and global tensions dampen the economic outlook.
The government also sharply revised down next year’s gross domestic product (GDP) projections to 1.3 per cent from 2 per cent outlined about six months ago.
The lower growth projections are likely to add to worries among analysts that Germany might stumble into a recession in the three months ended September after it posted a surprise quarter-on-quarter 0.2 per cent contraction in the three months ended June.
Since then, downbeat economic data and leading indicators have raised concerns about whether the German economy has regained momentum and that it could post a negative growth rate in the third quarter. Economists define a recession as two quarters of negative growth.
The forecasts coincided with the release of the leading German investor confidence indicator, which slumped to near a two-year low of minus 3.6 points in October.
Drawn up by the Mannheim-based ZEW institute, the closely watched indicator has now fallen for 10 consecutive months as Germany’s economic outlook has grown more uncertain.
Gabriel, leader of the Social Democrats – the left-leaning junior member of Merkel’s conservative-led coalition – pointed to global factors as behind Germany’s economic weakness.
“Geopolitical crises have also increased uncertainty in Germany with the only moderate global economic development acting as a drag on the economy,” he said.
Still, he expects German exports to grow by 4.1 per cent in 2015 after expanding by 3.4 per cent this year.
He added that the domestic growth forces remained intact, helped along by a pickup both in employment and real incomes.
“The continued robust labour market forms the basis for this,” he said.
The solid performance of Germany’s domestic economy means that imports should be up 4 per cent this year and 5.5 per cent in 2015, Gabriel predicted.
Corporate investment should also book a modest gain of 3 per cent this year and 4.1 per cent next year.
GNA
