Scholz Says No Need for German Stimulus After Dodging Recession
Scholz Says No Need for German Stimulus After Dodging Recession
(Bloomberg) --
Germany’s economy is growing slowly, but isn’t in a crisis and doesn’t need a boost from additional spending, Finance Minister Olaf Scholz said after the country averted a technical recession in the third quarter.
“It is good to know that we have the strength to do something if it’s necessary. But it’s also good to know that we don’t have a crisis,” Scholz said at a Bloomberg News event in Berlin, adding the Europe’s largest economy showed resilience amid global trade tensions.
Germany narrowly dodged its first recession in almost seven years with a surprise expansion of 0.1% in gross domestic product in the third quarter, data showed earlier Thursday. Still, annual expansion has slowed from 2.5% two years ago to only around 0.5% this year, as trade woes, weaker global growth and turmoil in the automobile industry weighed on the export-dependent manufacturing sector.
Waning global expansion was also evident elsewhere on Thursday. Japanese growth cooled sharply in the third quarter, and China reported falling exports, slower expansion in factory output and consumption coming off the boil.
Germany’s economic slowdown had prompted increasing calls, including from the U.S. administration and the International Monetary Fund, for Chancellor Angela Merkel’s government to loosen its pursue strings, especially with negative interest rates creating an incentive to borrow.
If a crisis hits, Scholz said that Germany would be prepared to carry out “timely and targeted” measures, such as expanding support for unemployed people. But there “never was a special reason” for a discussion on fiscal stimulus in Germany.
Scholz and the government’s chief economic advisers have argued that additional stimulus at a time of already expansionary fiscal and monetary policy would be counterproductive because the slowdown is mostly due to external factors, such as trade disputes.
“Looking at the German economy, which is really resilient and globally active, you have to understand there’s slower growth in the world,” said Scholz. “This has an impact on the economy in Germany. That’s obvious.”
There have been some signs recently that the economy may be through the worst of its downturn. Business sentiment appears to have stabilized, and investor confidence about the outlook is improving.
“We still have very high employment,” Scholz said. ”It’s slower growth but it’s not a crisis.”
Averting a recession could boost Scholz’s bid to head his Social Democratic party in a leadership election this month and weaken the argument of his detractors that the SPD, the junior partner in Merkel’s government, should quit the coalition.
The administration has been plagued by infighting and leadership struggles ever since Merkel stepped down as party leader late last year. She said she wouldn’t run again after her fourth term ends in 2021 at the latest.
Her successor to lead the Christian Democrats, Defense Minister Annegret Kramp-Karrenbauer, has stumbled in her attempts to make a name for herself and failed to boost the party’s support in opinion polls. Last month she faced an outright rebellion by party members wanting her to step aside in the race to succeed Merkel.
Scholz, a 61-year-old labor lawyer who was also mayor of Hamburg, is experienced and savvy but also seen as rather stiff and old school, particularly among younger Social Democrats.
--With assistance from Iain Rogers.
To contact the reporters on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.net;Stephanie Flanders in Berlin at flanders@bloomberg.net
To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Raymond Colitt, Chris Reiter
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