Germany’s Investment Gap Widens to EUR 410bn, 12% of GDP, Threatening to Harm Competitiveness

Read the full report.

Strict fiscal discipline since the financial crisis in 2008 has helped to keep Germany’s debt level on a downward trajectory. However, the pandemic has highlighted Germany’s investment gap in several key areas caused by the persistent public sector under-investment of recent decades. We estimate the resulting investment gap at around EUR 410bn, or 12% of Germany’s 2019 GDP.

If targeted appropriately, public sector investment can be highly effective at boosting private sector investment. This can help maintain Germany’s competitiveness through improvements in productivity to help counteract declines in the working-age population.

Three principal areas where Germany risks lagging behind other highly rated economies are education, digitalisation, and the transition to a carbon neutral economy. The size of the investment gap is significant, but it does not represent an unbridgeable amount even if it will be challenging to meet through budget re-allocations given rising spending pressures in view of the country’s demographic profile.

Leading German parties recognise importance of public investment

All Germany’s major political parties have recognised the importance of increasing public investments in their manifestos ahead of the federal elections in September. While there appears to be some agreement on many of the main investment priorities, the scale and funding of the investment initiatives differ significantly between political groups. The Greens have the most ambitious investment plan: they want to spend an additional EUR 50bn a year over the next 10 years.

Proposals to increase investments can support Germany’s growth potential. However, in practice, politically motivated spending pledges only make sense if there are also appropriate investment opportunities where public investments can enhance long-term productivity.

Debt brake has helped to ensure budgetary discipline

Germany’s debt brake has helped to place general government debt ratios on a downward trajectory since the financial crisis. Federal and state debt brake laws, introduced in 2009 for the Bund and binding for state governments since 2020, limit structural deficits to 0.35% of GDP a year, and to 0% for state governments. The Bund activated the general escape clause of its debt brake last year in response to the pandemic, which is expected to apply again from 2023. The next German government will therefore decide on the timing and specificities of the reinstatement of Germany’s debt brake rule, which will also have important implications at European level.

While increased investments are needed, Germany’s debt brake will ensure long-term fiscal discipline. Different options of funding such an increase in public investment, which need to remain focused on raising the country’s growth potential, will need to be explored further.

For a look at all of today’s economic events, check out our economic calendar.

Eiko Sievert is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH. Julian Zimmermann, Analyst at Scope Ratings, contributed to writing this commentary.

Source link

0 0 votes
Article Rating

Notifier de
0 Commentaires
Commentaires en ligne
Afficher tous les commentaires
Reset Password

Avertissement sur les risques :

Le trading peut vous exposer à des risques de pertes supérieures aux dépôts et ne convient qu’à une clientèle avisée ayant les moyens financiers de supporter un tel risque. Les CFD sont des instruments complexes et présentent un risque élevé de perte rapide en capital en raison de l’effet de levier. Entre 74 et 89% des comptes de clients de détail perdent de l’argent lors de la négociation de CFD. Vous devez vous assurer que vous comprenez comment les CFD fonctionnent et que vous pouvez vous permettre de prendre le risque élevé de perdre votre argent. Ce site n’est en aucun cas une offre de conseil en investissement ni une incitation quelconque à acheter ou vendre des instruments financiers. Trader le Forex et/ou les CFD’s implique un niveau de risque élevé, et peut ne pas être approprié car vous pouvez subir des pertes supérieures à votre dépôt. L’effet de levier peut être en votre défaveur.

Vous devez être conscient et avoir une compréhension complète de tous les risques associés au marché et au trading. Le site peut être amené à produire des commentaires d’ordre général, ce qui ne constitue pas des conseils en investissement et ne doit pas être interprété comme tel.

Veuillez recourir aux conseils d’un conseiller financier extérieur. Le site décline toute responsabilité pour les erreurs, inexactitudes ou omissions et ne garantit pas l’exactitude ou le caractère complet des informations, textes, graphiques, liens ou autres éléments contenus dans cette documentation. Toute information et toute mise à disposition sur le site ont un caractère privé.