Deutschland am Rande einer Rezession: Gemeinschaftsdiagnose Herbst 2008

In autumn 2008, the word economy is in a downswing, caused by the commodity and energy price hike of the first half of the year, housing crises in the US and some other important countries, and in particular by the financial crisis that has recently intensified. The downswing will continue this year and for some time during 2009, and will only come to an end later next year if governments and central banks succeed in stabilizing financial markets in the coming months. In this case, lower prices of commodities and still high growth dynamics in important emerging markets countries will lead to a tentative revival of the world economy. The German economy is on the brink of a recession. It is particularly vulnerable to a global downswing because exports of investment goods are of upmost importance for the overall economy. Because the uncertainty about the worldwide effects of the financial crisis is very high, the forecast is split. A more probable scenario is based on the assumption of a stabilizing world economy. In this scenario, the growth rate of the German economy in 2009 is 0.2%. The second scenario is based on the assumption of a worldwide recession next year and forecasts that German GDP will shrink by 0.8% in 2009. Concerning policy, the institutes recommend a strengthening of the capital base of banks via injection of government money. This should be done in a way that gives incentives to banks for attracting additional capital from private sources. A special chapter of the report analyzes the nature and causes of the price hikes of energy and commodities in the first half of 2008.

Im Sog der Weltrezession: Gemeinschaftsdiagnose Frühjahr 2009

In spring 2009, the world economy is in a deep recession. The intensification of the financial crisis in autumn has caused a sharp contraction of demand. The reaction of monetary and fiscal policy was substantial, but up to now (April 2009), it has not succeeded in restoring confidence of economic agents. Although some leading indicators point to a stabilization of production in the coming quarters, the downturn will not come to an end before next winter, because the financial crisis will continue to put strain on the real economy for some time to come. The German economy is in its deepest recession since the foundation of the Federal Republic. Germany is particularly affected, because at the core of the economy is the production of those goods for that world demand has collapsed most: capital goods and high-quality consumer durables. While exports and private investment activity will continue to shrink this year (albeit at a slower rate), private consumption will be a stabilizing factor for some time, as will public investment activity in the second half of the year. Later in 2009 and in 2010, rising unemployment will depress consumption, while in this forecast, it is assumed that exports and investment slowly recover in 2010, because the financial turmoil will calm down. For economic policy, a recapitalization of the banking sector should have priority. The ECB should lower its key interest rate to 0.5%. Given the sharply increasing fiscal deficits, a new, third fiscal program would be counterproductive. Only if monetary policy fails to stabilize the economy, further fiscal measures, coordinated at a European level, should be considered.

Zögerliche Belebung – steigende Staatsschulden: Gemeinschaftsdiagnose Herbst 2009

In autumn 2009, the world economy appears to be growing again. The situation has improved mainly because drastic measures of central banks and governments stabilized the financial sector. More recently, the real economy is supported by fiscal programs taking effect. However, recoveries are usually slow if, as it is the case now, recessions have been intertwined with banking and housing crises. Thus, the industrial economies will not gain much dynamics this year and next, while chances for an upswing in emerging economies are much better. The German economy stabilized during summer as well, with remarkably robust private consumption. An upswing, however, is, due to several factors, not in sight: Some important export markets will not rebound quickly, and consumption will be dampened by rising unemployment that, up to now, has been contained, not least with the aid of short-term working schemes. All in all, production shrinks by 5% in 2009 and will increase by no more than 1.2% next year. Public deficits are on the rise, with (in relation to GDP) 3.2% this year and 5.2% in 2010. A credit crunch due to deteriorating balance sheets of banks is a major risk for the German economy. Policy should address this problem by making sure that equity ratios are sufficiently high. One way would be to impose public capital on banks that do not comply with certain regulatory ratios. These should be higher than the ones presently in force. Fiscal policy should begin consolidating in 2011, mainly by dampening the rise of expenditures. Tax cuts are only justified if they are accompanied by very ambitious spending cuts.

Aufschwung legt Pause ein - Gemeinschaftsdiagnose Herbst 2007

The world economy continues to expand healthily, but risks have increased during summer. The crisis of the housing sector in the US has deepened: A revaluation of mortgage backed assets has triggered turbulences on global financial markets. The institutes expect that financial markets will calm down during the coming months, but that the downswing in the US will slow the pace of the world economy. The economy in the euro area will, in addition, be dampened by the appreciation of the euro. The German economy is, in spite of a restrictive fiscal policy, in a robust upswing. Because wage setting and inflation continues to be moderate, there will be no need for a restrictive monetary policy. Thus the German economy will, due to slower demand from the US and higher costs of financing, lose momentum, but chances are good that the upswing will only take a break. In the coming year private consumption is expected to be the main contributor to growth, because wage incomes will expand strongly. Unemployment will continue to shrink, albeit at a smaller rate than during 2007. Fiscal policy will no longer be restrictive. Economic policy has improved the conditions for growth in Germany; there is, however, still much to do. Public finances have to be consolidated further, but at the same time, public investment has to be strengthened. This can be achieved if public consumptive expenditure growth is limited. The institutes suggest to increase public expenditure by 2% per annum over the cycle in nominal terms; this is, by less than by the trend growth rate of nominal GDP. The institutes advise against a reversal of the recent labour market reforms. Instead, incentives for taking up jobs should be increased further.