German economic slump a wake-up call for Merkel

Andrew McCathie –
German businesses have stepped up pressure on Chancellor Angela Merkel to deliver a new round of fiscal stimulus after a second-quarter slump in Europe’s biggest economy helped to fuel worries about the nation stumbling into recession.
Gross domestic product (GDP) slowed at its fastest pace in more than six years, sinking by 0.1 per cent in the April-June period and down sharply from the 0.4-per cent growth in the first three months of the year, the Federal Statistics Office (Destatis) said on Wednesday.
“The GDP report definitely marks the end of a golden decade for the German economy,” said ING Bank chief German economist Carsten Brzeskias a bitter US-China trade war along with the threat of Britain crashing out of the European Union have hit Europe’s economic powerhouse. After nine years of healthy growth in Germany, the nation’s economy grew by 0.4 per cent in the year to June, its slowest rate for six years.
German business leaders seized on the latest GDP data to call on Merkel’s conservative-led coalition to take action to shore up the nation’s economic outlook. The growth data are “a loud wake-up call for the politicians to finally… take decisive action,” said Holger Bingmann, who heads the Federation of
German Wholesale, Foreign Trade and Services (BGA).
“For months, all observers have realised that the air has been getting thinner for the German
economy,” he said.
“Instead of, for example, finally tackling a modernisation of corporate taxes, infrastructure problems and high energy costs, projects such as a basic pension are top of the political agenda,” Bingham said.
On Tuesday, Merkel acknowledged that the German economy was facing a “difficult time,” but warned against acting too soon, saying: “We will act as the situation requires.”
However, Bingmann’s views were echoed by Federation of German Industry (BDI) president Joachim Lang, who called on Berlin “to use its fiscal space” to jump-start growth.
“There are murky months ahead of us, which threaten to become years, if political leaders do not introduce vigorous countermeasures,” said Lang.
Indeed, the second-quarter GDP data served to highlight the dramatic change in fortunes for Europe’s biggest economy, with the country’s struggling car sector helping drag down the growth rate due to slowing sales in China and pressures to restructure.
It was also the second time in the past year that the nation’s economy has contracted: GDP slumped in the third quarter of 2018 before stagnating in the final three months of the year.
“The recession risk is now at a high level as a result of the very weak start into the third quarter,” said Katharina Utermoehl an analyst at German insurance giant Allianz.
A spokesman for Finance Minister Olaf Scholz insisted on Wednesday that growth measures were already in place, including moves to abolition the hated “solidarity” surcharge on income taxes, which was originally introduced to help finance the rebuilding of Germany’s former communist east.
Both Scholz and Merkel have also recently reaffirmed their commitment to maintaining a balanced budget in Germany. While a solid performance of the domestic economy helped to offset some of the economic fallout for Germany from global economic tensions, the GDP data underscored the deepening of gloom in global manufacturing as the US-China trade war hits the world economy.
Private consumption grew at a faster pace in the second quarter compared with the first three months of the year, Destatis said. Investment also picked up in the three months ended June, the statistics office said. — dpa