A longer blockade is manageable for the economy – provided the state spends much more money. “Investing is more important than paying off debt,” said Sebastian Dullien, director of the Institute for Macroeconomics and Business Cycle Research (IMK). On Tuesday, a DGB-funded institute presented a surprisingly optimistic economic forecast. The German economy is growing at least 4.5 percent this year after economic output fell by five percent in 2020. “The extension of the closure does not fundamentally jeopardize the economic picture,” Dullien said.
The IMK forecast is at the upper end of expectations. The Berlin DIW expects only 3.5 percent growth and the Council of Economic Experts believes that its forecast of 3.7 percent in the autumn after a hard lock is no longer possible. Whatever the outcome, all economists agree that the level of 2019 will not be reached until 2022.
“Debt brake doesn’t make sense”
Dullien generally considers state support for lock-up victims, especially in retail and catering, to be positive. However, he advocated higher reimbursement of fixed costs as part of bridging aid and a law to reduce commercial rents in favor of traders. However, the most important thing for a trade union economist is to continue public investment and overcome the debt brake, which does not make sense given the level of interest rates.
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The DGB and the Federal Industry Association, as well as the IMK and the Institute of Economics (IW), which are closely linked to employers, are demanding significant additional spending from the public sector to address “an investment requirement of around € 450 billion by 2030 for the upcoming decarbonisation and digitalisation of the economy and society ’. In this case, says Dullien, “the necessary long-term modernization and short-term economic recovery can go hand in hand.”
The Minister of Finance receives money on debt
Financing is not a problem because the current interest rate for 30-year federal bonds is minus 0.15 percent. Federal Finance Minister Olaf Scholz is still raising money from creditors in this unprecedented phase of low interest rates, which lasts for years and the end is not in sight. Debt repayments planned for 2026 at € 17 billion a year are “redundant” and should be “severely strained”. There is a good chance that the Federal Republic will grow out of debt, as it did after the financial crisis in 2008/09. Dullien calculated that the debt ratio in 2012 was less than 82 percent of economic output.
Out of debt
At the end of 2019, when growth was slowly weakening, the rate fell by 21.4 percentage points. Of this, 4.9 percentage points represented loan repayments. “More than three-quarters of the decline in the debt ratio was due to economic growth and inflation, and only a small portion was due to repayments.” This is in the years when the economy has grown solidly on average, but by no means particularly dynamically, “Dullien said. He expects the debt ratio to fall below 60 percent in the second half of the 1920s, even without repayment. one percentage point per year and inflation 1.6 percent would suffice.
Mainly due to the contribution to short-term work, the labor market did not collapse during the pandemic. However, a lack of social security has emerged among mini-workers and the self-employed. Dullien therefore called for miniature employment to be increasingly transformed into employment subject to social security contributions and to consider introducing compulsory unemployment insurance for the self-employed.
Growth in retail
According to the pandemic, German citizens saved 100 billion euros more last year than in the previous year, the IMK determined. If savings accounts were emptied in the spring, as Dullien anticipates, it will act as an economic stimulus program. Until the new lock, which began in November and was tightened by the closure of the store in mid-December, consumption was not so bad. According to the first surveys of the Federal Statistical Office, real revenues increased by 4.1 percent – in the first eleven months. December, which is very important for trading, was probably significantly weaker.
In addition to online trading (plus 23 percent), there was growth mainly in the food sector; The furniture and household goods store also made a good deal. On the other hand, there was a failure of the textile trade. In this segment, sales decreased by 21.5 percent. In November alone, sales of textiles, clothing, footwear and leather goods fell by 20 percent. Then came the lock.