Bundesbank Sees No Need for Fiscal Stimulus in Germany Right Now

(Bloomberg) --

Germany’s central bank doesn’t see a need for fiscal stimulus at this time, even though it expects the economy to shrink again this quarter, according to two people familiar with the Bundesbank’s stance.

While it’s prudent for Finance Minister Olaf Scholz to prepare measures that could be implemented if the outlook worsens, the economy currently doesn’t require additional support, the people said, asking not to be identified revealing internal deliberations.

Economists at the Bundesbank predict output might fall 0.1% in the three months through September, the same pace as in the previous quarter, according to the people. Conventionally, two consecutive quarters of economic contraction would be considered a technical recession.

A Bundesbank spokesman declined to comment.

Germany’s deteriorating economy, highlighted in a survey on Thursday showing manufacturing still shrinking and orders falling, has prompted a wave of calls for the government to provide a fiscal boost.

Even with long-term borrowing costs below zero, the government has been reluctant to abandon its balanced-budget policy and jump into action. However, Bloomberg reported this week that it’s is preparing measures that could be triggered by a deep recession.

At the central bank however, experts describe the state of the economy as one of protracted stagnation, with the performance over the past year skewed by a range of temporary factors. Mild winter weather, for example, bolstered output in the first quarter, with payback in the spring.

That doesn’t mean there’s no risk of a deeper slump. In its monthly report published Monday, the Bundesbank highlighted the difficulty predicting the current course of the economy, with manufacturing in a deep downturn and private consumption still solid.

“As things currently stand, it is unclear whether exports and, by extension, industry will regain their footing before the domestic economy becomes more severely affected,” the Bundesbank wrote.

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