IMF Pushes Germany Not to Be Afraid to Spend More If Needed

(Bloomberg) -- Germany should stand ready to deploy additional fiscal support if needed until there is evidence of a sustained recovery, according to the International Monetary Fund.

Europe’s largest economy will contract less this year than previously expected, the lender said after one of its regular reviews. At the same time, “the outlook is highly uncertain, and risks are tilted to the downside.”

Resurgent coronavirus infections have pushed Germany back into a partial lockdown, interrupting a sharp initial rebound from restrictions earlier this year. Restaurants, bars, and other venues remain closed until at least the end of this month, and the Bundesbank has warned output could contract again this quarter.

“The more severe a recession, the more you should err on the side of generosity,” Shekhar Aiyar, the IMF’s mission chief for Germany, said at a press conference. “Germany is in the somewhat enviable position of having ample fiscal space.”

Additional measures could include extra grants to viable firms, reduced social-security contributions from low-income earners, and expedited public investment and spending on climate change-mitigation policies, the IMF said in its report. Germany already announced further support this month to support some of the businesses most affected by the restrictions.

The IMF predicts Germany’s economy will shrink by about 5.5% this year, with “only a partial recovery” in 2021. In October, it had predicted a contraction of 6%.

©2020 Bloomberg L.P.