German CDU leader pledges to keep balanced budget as recession looms
The leader of Germany’s ruling party has resisted calls to increase government spending to stimulate the economy, saying the “black zero” balanced budget policy is “indispensable”.
Read more: German business confidence slumps to lowest point since 2012
Annegret Kramp-Karrenbauer, the leader of German Chancellor Angela Merkel’s Christian Democrats (CDU), said at a news conference: “The black zero, as an expression of finance policy solidity, is an indispensable principle for us.”
Her comments came a week after the German economy was shown to have contracted in the second quarter by 0.1 per cent as exports slumped. The country’s central bank has since warned Germany could already be in recession.
Europe’s biggest economy has suffered under the ongoing US-China trade conflict, a global slowdown, weaker demand from China and Brexit negotiations.
Investors have been hoping that government stimulus spending, which could push the budget into deficit, could boost the economy. Finance minister Olaf Scholz said last weekend that €50bn (£45bn) of spending could be required if Germany enters a recession, lifting markets.
Yet Barclays analyst Fabrice Montagne cautioned said Scholz “did not appear in a hurry to deploy extra spending unless the economy was to fall in a deep recession”.
German governments have traditionally been wary of budget deficits and the country has been in surplus for the last five years.
Montagne said it was risks associated with a no-deal Brexit, rather than slowing growth, which “could lead to a more front-loaded fiscal easing in Germany”.
One possible source of higher government spending could be a government which includes the Green party.
Read more: German manufacturing stays firmly in contraction mode in August
“But even the Greens advocate only slightly looser fiscal policy,” said economists from Capital Economics in a note.
(Image credit: Getty)