Economic stimulus package in Germany sets the right accents

All in all, the grand coalition’s new economic stimulus package represents a good compromise in view of the differing positions both between and within the individual parties. The fact that they did not get involved in the „scrapping premium 2.0“ and instead opted for a temporary reduction in VAT is the right decision. It is not lobbyism that has prevailed here, but economic rationality. This measure will support all major purchases, including, of course, the purchase of cars. However, no one sector is given preferential treatment. It is a simple and fast-acting measure that also has a desired distribution effect. After all, the burden of excise duties is heaviest for lower-income households.

The various tax measures in favour of businesses are also to be welcomed. Among other things, the possibilities of tax loss carry-back and depreciation have been extended. The reduction of the EEG levy on the electricity price from 2021 onwards helps companies and households. This too is a good signal, as is the relief for local authorities in the event of trade tax losses.

It was to be feared that there was no way of getting off the „child bonus“ that had been promised earlier. This is the much-cited watering can, the effect on consumption will be negligible. Here a more targeted help for needy households would have been better, but this could probably not be implemented in the short time available.

All in all, therefore, the programme should be welcomed from an economic point of view. At just under 4 percent of GDP, it has a considerable volume and should provide a noticeable boost to the economy. This means that we are also adjusting our economic forecast for Germany. In the past, we had already assumed that the economy would be stimulated, since the German government had been holding out the prospect of this since the spring. However, the economic stimulus package that has now been presented exceeds our expectations, so we will be raising our growth forecast for Germany. The additional stimulus for the gross domestic product for 2020 is approximately ¾ percentage points and for 2021 approximately ¼ percentage points.

Private consumption will be stimulated in the second half of 2020 by the lower consumption tax. Larger purchases will be made, certainly in part brought forward from 2021, so there will be some rebound in the first quarter of next year. However, the net effect of the VAT cut should be clearly positive and could boost private consumption by around one percentage point.

As a result of the expected price cuts, the inflation rate will also fall in the second half of the year. From July onwards, it will probably be between -1 and -2 per cent, but in the second half of 2021 it will also be correspondingly higher (between 2.5 and 3.5 per cent) due to the base effect.

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