Germany Needs a Recession to Start Spending
The pressure on Angela Merkel to give up the zero deficit policy is mounting as the economy weakens, but she will wait before turning on the spending taps.
Angela Merkel, Germany's chancellor.
Photographer: Geert Vanden Wijngaert/BloombergGermany is on the brink of a recession. This isn’t happening because of any structural problems: U.S. President Donald Trump’s trade wars are the main culprit. Still, Germany’s powerful industrial lobby now is openly questioning the government’s adherence to the famous schwarze Null, or zero budget deficit, policy.
Output shrank by 0.1% in the second quarter compared with the previous three months. The contraction is a consequence of a drop in industrial production and construction that amounted to 0.6% of gross domestic product. Government spending and domestic demand, which was stronger than in the first quarter, compensated for most of this decline. “Had we seen a domestic demand in this cycle as weak as we saw it in the recovery after 2005, the German economy would already be back in a deep recession,” tweeted Sebastian Dullien, an economics professor at the University of Applied Sciences in Berlin.