Germany needs a massive stimulus!
It was a close call, but Germany avoided a technical recession in 2018. After a decline of 0.2% of GDP in the third quarter of 2018, the country recorded zero growth in the fourth quarter, according to preliminary figures recently released by Destatis, the Federal Statistical Office. This is less than the 0.1% anticipated by economists polled by Reuters and bringing the German GDP growth to 1.4%in 2018, against 1.5% expected by the government. The first country in the European class is now below average growth in the euro area, which stands at 1.8% for 2018.
Variations of Exports vs. Budget Balance in Germany: Room for Manoeuvre Exists
Germany therefore needs a domestic stimulus to be less exposed to external demand, which is constantly weakening in an international context of uncertainties. And there is basically no risk in doing so. The stimulus can be financed without borrowing. Germany would just have to save less. And if Germany had to borrow a bit, it would do so at negative real interest rates. The 10-year bond yield is around 10 basis points; even if the ECB regularly misses its inflation target, it would still imply a negative real interest rate. Inflation is currently low in Germany (around 1.85% in 2018 for harmonized inflation).
A domestic stimulus would allow Germany's massive savings surplus to be used in its economy, which would reduce the risks that German savers currently take by placing their savings abroad. Germany could take advantage of this stimulus to green its industrial sector a little more, and thus its economy.
Julien Moussavi, Head of Economic Research
Sources: Beyond Ratings, Datastream