Germany Not in Crisis Nor Mulling Stimulus, Finance Chief Says

(Bloomberg) -- German Finance Minister Olaf Scholz brushed off warning signals for Europe’s largest economy, saying the government has no concrete plans to spur economic growth.

The German Social Democrat, who is Chancellor Angela Merkel’s deputy in cabinet, said resolving “man-made” crises such as trade tensions and a potentially hard Brexit would help boost growth rates as early as the end of this year.

“We are not in a situation that makes it necessary or wise to act as if we were in a crisis, we are not,” Scholz said in an interview with Bloomberg Television in Berlin on Thursday.

Scholz spoke moments after the European Central Bank offered its strongest-yet signal that monetary support for the euro-area economy will be scaled up after the summer break. The business outlook for German companies tumbled to the lowest level in a decade as the Bundesbank said Europe’s largest economy shrank in the second quarter, adding to signs that Germany may be staggering toward a recession.

ECB President Mario Draghi said manufacturing in Germany and other parts of Europe is sustaining an “idiosyncratic shock” and may need government spending to lift it out of its malaise. Draghi noted the limits to monetary policy’s impact.

“If there were to be a significant worsening in the eurozone economy, it’s unquestionable that fiscal policy -- a significant fiscal policy, mostly in some countries but also at the euro-area level -- becomes of the essence,” Draghi told reporters in Frankfurt. Should monetary policy not have traction, government fiscal policy “will become of the essence.”

But economists expecting any stimulus from the German government will have to rethink, as Scholz signaled there was nothing in the pipeline. Existing middle-class tax cuts and infrastructure spending being implemented by Merkel’s coalition are doing their job, Scholz said, scoffing at any additional stimulus.

“This is not a wise idea,” he said, citing high employment and public investment as well as labor shortages in parts of the German work force. Increased spending would rather lead to rising prices rather than bolstering economic growth, Scholz said.

Seething trade tensions between the U.S. under President Donald Trump and China is weighing on exports, with auto manufacturers struggling to cope with adjustments in the industry. The Rhine river, one of Germany’s main transport arteries, saw water levels running precariously low, threatening a similar disruption of supply lines that occurred last year.

An Ifo gauge of business expectations fell to 92.2 points in July, the lowest level since 2009. Firms’ assessment of current conditions also declined, leaving a composite index at 95.7, below even the most pessimistic forecast in a Bloomberg survey of economists.

“It is clear that the Eurozone is in need of some form of support,” Oliver Blackbourn, a portfolio manager at Janus Henderson Investors, wrote in a note to clients. “Broad fiscal support still seems highly doubtful but more and more extreme monetary policy alone is not the answer.”

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net;Matthew Miller in Berlin at mtmiller@bloomberg.net;Arne Delfs in Berlin at adelfs@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Raymond Colitt

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