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Germany’s pandemic recovery raises age-old questions about European economy – DW (English)

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4 years ago

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Germany’s economy was starting to struggle before the pandemic but the country’s response means it is powering ahead of the rest again. This raises questions about a two-speed European economy.

In 1947, two years after the end of World War II, the European economy was in severe trouble. “We are threatened with total economic and financial catastrophe,” said then-French Economy Minister Andre Philip in April that year.

There were many problems but the biggest was Germany. Two years after the Nazis were defeated, Germany’s recovery had in many ways already been remarkable — but economically it remained a basket case and Europe realized it needed its engine back. In part, the Marshall Plan’s purpose was to restore the German economy to the heart of Europe.

By the start of the 1950s, the European economy was in miracle territory but Germany’s miracle burned brightest. The next two decades were among the most prosperous in history.

Here in 2020, the European economy also finds itself at a pivotal and potentially perilous historical moment. The pandemic is ongoing and the economic recovery — if we can even call it that — from the dire lockdown-hit first six months of the year is patchy.

Yet it is already clear that Germany’s economy is faring much better than its closest European equivalents France, Britain, Italy and Spain. Its GDP fall for the lockdown quarters was substantially less than those countries while its recovery for the third quarter of the year is projected to be much better.

Why is Germany’s economy faring better than its European neighbors and will that be a help or a hindrance to the European economy going forward?

No lockdown, Bazooka used instantly

According to Lars Feld, chairman of the German Council of Economic Experts, Germany’s reasonably positive economic situation is driven by the fact that its lockdown was never as strict as elsewhere in Europe.

“Despite lockdown measures, an interruption of value chains or lower private consumption due to considerable uncertainty, the German economy continued a considerable part of its activity. For example, the construction industry had very low restrictions,” he told DW.

Another major help is the massive financial support the German government has provided to businesses and citizens, something it was able to do after years of frugality in terms of its budget.

The “bazooka,” as German Finance Minister Olaf Scholz called it back in March, amounted to close to €1 trillion ($1.16 trillion) in aid when everything from state-backed loans to the country’s much-admired Kurzarbeit scheme is included.

“The German economy has had more reserves than other European economies, be it with respect to fiscal space due to successful consolidation of public finances in the past or with respect to private firms which have a sound equity base in general,” says Feld.

German Economy Minister Peter Altmaier wearing a face mask presents the government’s updated 2020 economic outlook

V for Victory

That helps explain why the German Economy Minister Peter Altmaier was so bullish back on September 1 when, wielding graphs showing Germany’s “v-shaped recovery” (a sharp drop followed by an equally sharp rise), he said: “The recession in the first half of the year was not as bad as we feared, and the recovery since the high point of the shutdown is happening faster and more dynamically than we had dared hope.”

But it’s not all plain sailing. Before the pandemic hit, Germany’s economy was slowing down anyway. Longstanding vulnerabilities in terms of exports and the car sector were being exposed by a slowdown in global trade and by the technological changes sweeping the auto industry.

One key sector which feels such headwinds keenly is that of the country’s machine builders, a vital cog in Germany’s export machine. For them, the pandemic has had a severe impact. Even though factories weren’t really forced to close in March and April, without foreign demand, orders fall.

That’s why Germany’s Mechanical Engineering Industry Association (VDMA) forecasts a drop in production of 17% for its thousands of members in 2020, with a tiny rise of 2% foreseen for next year.

“There are not so many orders in the books now,” the VDMA’s director of foreign trade Ulrich Ackermann, told DW.

A close-up picture showing Ulrich Ackermann

Ulrich Ackermann from the German Mechanical Engineering Association

Yet the factors mentioned earlier, namely the fact that production was never shut down and that workers have been retained through government intervention, means that Germany’s machine builders are in a stronger position than those in other countries.

“In general we are maybe in better shape than other countries, they had real lockdowns and that meant they could not produce any longer,” says Ackermann. “Our companies could always produce when they wanted.”

Healthy man of Europe

If and when demand picks up in Germany’s overseas markets, it appears likely that German companies will be readier than most to step in and meet that demand.

That brings us back to the central question of Europe’s two-speed economic recovery. If the forecasts bear out and Germany’s economic contraction this year is less than its French and southern counterparts, what will that mean?

Arguments between German and southern interests have dominated EU discussions on fiscal policy for the last decade. The recently agreed €750 billion Post Pandemic Recovery Fund was historic in that Germany agreed, for the first time, for a form of shared European debt.

A picture of German Chancellor Angela Merkel and the head of the European Commission, Ursula von der Leyen, during a joint news conference via video conference to mark Germany's taking over the EU's rotating presidency from July 1.

The EU’s pandemic recovery fund saw Germany agree to a historic policy shift in terms of European debt

With its economy growing faster than Spain and Italy’s, there remains the possibility that tensions over funding and reforms associated with struggling countries receiving such funding, could bring familiar debates about debt and austerity back to Brussels again.

But there is another, equally familiar view about the benefits of Germany’s engine purring a little better than the rest.

“A strong German economy could serve as an economic engine for other EU member countries, in particular regarding the strongly developed value chains in Europe,” says Feld.

“The quick takeoff of the German economy triggers demand in other EU countries. It should also be kept in mind, that the high credit-worthiness of Germany is a strong backup for the EU budget and the ECB balance sheet, both allowing other countries in Europe to restart their economies without further turbulences, e.g., on financial markets.”

Much like it was after World War II, it appears that it is much better for Europe to have a German economy that is too strong, than one that is too weak.

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

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2 days ago

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September 10, 2024

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VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

The Canadian Press. All rights reserved.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

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3 days ago

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September 10, 2024

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NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

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3 days ago

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September 10, 2024

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HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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