Germany’s economic engine is faltering, but the situation is stable

Germany's economic engine is faltering, but the situation is stable

The federal government expects a weaker economy this year – but the situation on the labor market and the development of incomes will remain stable.

The unemployment rate is expected to fall to 4.9 percent, while the number of employees will continue to rise, according to the government’s annual economic report, which was presented on wednesday.

The net wages for the employees were also allowed to rise. But economics minister peter altmaier sees an increasing headwind for the german economy, especially due to a weaker global economy and risks such as a chaos brexit.

For 2019, the federal government expects gross domestic product to increase by 1.0 percent. In its fall forecast, it had assumed growth of 1.8 percent. According to an initial estimate by the federal statistical office, europe’s largest economy grew by 1.5 percent in 2018 as a whole, after 2.2 percent in each of the two previous years. In the third quarter, problems in the auto industry in particular held back the economy.

The german economy continues to grow for the tenth year in a row, altmaier said. But the uncertainties increased. The CDU politician therefore wants to take countermeasures. "The good years can continue if we act wisely and prudently."

It makes sense to think about an economic stimulus program in times of upswing in order to strengthen growth forces. This includes a relief for workers and companies. With different measures, a total of 10 billion euros could be made available for additional investment incentives – without jeopardizing the goal of a balanced federal budget.

Altmaier spoke out in favor of a planning acceleration law so that investments can be made more quickly. In addition, he mentioned the tax research requirement for companies, which has already been adopted. The coalition wants to introduce a bill in the bundestag by summer. "This is an important signal to all companies that do research and development," altmaier said.

He also proposed more tax incentives for energy-efficient building renovation and depreciation options for low-value assets. In addition, bureaucracy is to be reduced – for example, by means of fewer documentation requirements. Altmaier also called for a roadmap for a complete dismantling of the solidarity surcharge. In the case of the "soli", the union and the SPD are planning to reduce the tax burden by 10 billion euros by 2021, which should relieve 90 percent of the soli payers. The SPD is against a complete cutback.

The business community has been calling for relief for a long time. "Germany is coming under increasing pressure as a business location. Germany has become the country with the highest taxes," said the federation of german industries (BDI). It’s overdue to cut taxes so companies invest more, he said. Left-wing politician klaus ernst said that domestic demand is the pillar of the economy. "In particular, it must also be a matter of ensuring that the lower income groups participate more strongly in economic development."

The CDU/CSU parliamentary group in the bundestag advocates comprehensive reform of corporate taxes. The tax burden on companies is to be capped at a maximum of 25 percent, down from the current level of more than 30 percent, according to a working paper obtained by the deutsche presse-agentur. Previously, the business weekly "wirtschaftswoche" had reported that. The report points out that business taxes have been lowered in the USA and many european countries.

SPD secretary general lars klingbeil said the coalition has already decided on strong stimulus for economic growth and is investing more heavily in infrastructure, digitization and development. "Workers will be relieved of many billions of euros in childcare fees, for example, through higher child benefits and a return to the half-and-half principle for health insurance contributions – and without incurring new debts."If altmaier now calls for additional tax cuts without proposing any counter-financing, this is "completely unserious" in terms of financial and economic policy.

According to the government report, the relief already decided will ensure that gross wages rise even more significantly this year. Private consumption remains strong as the central pillar of the economy. Job boom continues, leading to sharp rise in wages amid labor shortage. Unemployment rate expected to fall to 4.9 percent in 2019 – down from 5.2 percent the year before. Employees’ net wages and salaries are forecast to rise by 4.8 percent, the same rate as in 2018.

Despite increasing economic uncertainty, consumers are in a strong buying mood, according to a survey by the gfk. "Rising income expectations mean that consumers are currently relatively unimpressed in terms of their propensity to consume," said gfk consumer expert rolf burkl. The gfk expects private consumer spending to increase by around 1.5 percent this year – roughly the same rate as last year.

The shortage of labor also has a downside: because of the lack of skilled workers in many industries, companies are not producing as they could. Expansion of infrastructure is also being hampered. The problem is also to be solved with more skilled workers from abroad.