German economic growth plummeted in 2019, official data showed Wednesday, providing fresh ammunition for debate about how to use fiscal surpluses to boost gross domestic product.
Europe’s powerhouse expanded just 0.6 percent last year, compared with 1.5 percent in 2018, federal statistics authority Destatis said in preliminary figures.
“Growth momentum ebbed significantly” last year, Destatis expert Albert Braakmann told reporters at a Berlin press conference.
But the office also noted that 10 successive years of growth had made for the longest expansion since German reunification in 1990.
Looking ahead, “the golden decade Germany has seen for growth is gradually coming to an end,” said Holger Schmieding of Berenberg bank.
Trade conflicts, political upsets such as Brexit, slowing global growth and a near-unprecedented rate of change in the car industry have all weighed on Germany’s manufacturing backbone in recent years.
Meanwhile, solid domestic consumption, buttressed by low unemployment, has helped keep the economy out of recession.
As 2020 begins, a “phase one” US-China trade deal is set to be signed Wednesday, while the next Brexit steps are clear after Boris Johnson’s resounding British election victory last month.
Both could provide much-needed relief to export-oriented German manufacturers.
But ratings agency Moody’s warned Tuesday of a “deteriorating global environment” that “will weigh on growth in (eurozone) member states’ open economies in 2020”.
The Bundesbank (central bank) sees growth this year marking time at around the 2019 level, while think tanks and some bank analysts expect a mini rebound, to around one percent.
How to spend it
Persistently anaemic growth and a multitude of structural challenges — from an ageing population to crumbling infrastructure and the car industry’s transition to electric power — have prompted calls at home and abroad for Berlin to do more.
Critics say Chancellor Angela Merkel’s successive governments have stuck too dogmatically to a no-new-debts policy known as “black zero”.
In recent years, billions of euros in government budget surpluses have not been deployed to maximum growth-boosting effect.
Also Wednesday, Destatis said the total surplus across all levels of government — local, regional and federal — amounted to 49.8 billion euros ($55.4 billion), or 1.5 percent of GDP.
A fresh tug of war is already beginning between Merkel’s conservative CDU party and their SPD centre-left junior coalition partners over how to spend the bonanza.
Where the SPD favours more investment and higher social spending, many CDU politicians want tax cuts for individuals and businesses.
“Short-term stimulus is still not really needed” in Germany, ING’s Carsten Brzeski said. “Instead, the surplus should be used to step up investment efforts in the well-known sectors: digitalisation, infrastructure and education,” he added.
Possibly in response to such arguments, the government said Tuesday it had agreed to pump 62 billion euros into modernising its rail network system, as part of a wider plan to incite commuters to opt for greener public transport options.
While the political battles are fought out, “Germany’s attractiveness as a site for investment is gradually falling away, because economic policy is becoming less favourable”, Berenberg’s Schmieding said.