The IMF anticipates a resumption of German economic growth starting in 2025.
Germany is currently ranked last among the biggest economies globally, as per the International Monetary Fund (IMF). But the Fund is more hopeful for the future. In order to spur crucial new investments, it suggests relaxing the country's debt limitation rules.
The IMF predicts that Germany will witness considerably higher growth rates between 2025 and 2026, with an anticipated economic growth of around 1-1.5 percent in those years. Last year, the German economy faced a contraction, and this year, it's only expected to expand moderately by 0.2 percent. It occupies the last spot among the top seven industrial nations at present.
A major factor attributed to this recovery is the lower inflation rates, which are anticipated to continue declining throughout the year. The IMF believes the economy will be primarily fueled by private consumer spending. As per their recent report on Germany, rising real wages are a key reason. The IMF encourages the federal government to boost investments in areas such as climate protection and digitization. Additionally, reducing bureaucracy and increasing the number of childcare facilities could help boost female labor force participation in the face of a skills shortage.
The IMF lauded Germany's response to the missing Russian gas deliveries, such as aid for consumers and the exploration of new energy sources. This has led to a drop in energy prices and a decrease in inflation. Global political conflicts, including Russia's recent assault on Ukraine and the escalating Middle East conflict, are named as primary threats.
The IMF advises a moderate alteration to Germany's strict debt constraint, which currently restricts the government from amassing new debt beyond 0.35 percent of its Gross Domestic Product (GDP). It points to Germany's substantial investment backlog and the rising expenditure demands. Doubling this limit could allow the debt ratio to shrink further. The IMF also recommends considering the removal of subsidies or tax breaks that harm the environment.
However, the possibility of reforming the debt brake appears unlikely considering the need for a supermajority parliamentary consensus. The chief adversary of such a reform within the coalition government, led by the SPD, Greens, and FDP, is Federal Finance Minister Lindner. Insiders in his finance ministry recently shared that they wouldn't adhere to such recommendations, which could potentially jeopardize the EU's new debt regulations.
Minister Lindner is quoted as saying that relaxing the debt brake poses the risk of rekindling inflationary pressures. Higher debt usually comes with higher costs. Investments under the current budget are already at an all-time high, and not all available funds can be spent. Rather than loosening the rules, the focus should be on prompting greater private sector investments.
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The IMF suggests relaxing Germany's debt limitation rules, known as the debt brake, to stimulate new investments, as they anticipate significant economic growth starting in 2025. This growth is expected to be driven by lower inflation rates, a decrease in energy prices, and an increase in private consumer spending, according to the IMF's report.
Despite the IMF's recommendation, Federal Finance Minister Lindner expresses concerns about relaxing the debt brake, fearing it could rekindle inflationary pressures and result in higher costs for increased debt. Instead, he advocates for encouraging greater private sector investments.
Source: www.ntv.de
