Hubert Fromlet: Germany after the elections – continued small steps
18 Sep 2009 | Posted By: JIBS Stories
Germany acted and reacted relatively well during the financial crisis. Only one major bank – the mortgage bank HRE – contributed to a real systemic risk. During her first term as a German chancellor, Angela Merkel was quite successful in keeping together the great coalition with the social democrats. Germany advanced structurally during Merkel’s term mainly in 2005 and 2006, mostly based on smaller steps in the right direction. One major reform, however, has been hardly observed in foreign analysis: the more or less abandoned possibility of new public net debt, starting in the second half of the next decade.
Whatever the future government coalition may look like, I do not expect substantial changes from the forward-oriented policy of relatively small steps into the right direction after the general elections on September 27. However, there are still a significant number of necessary reform areas such as demographically oriented social issues, subsidies, tax structure, bureaucracy, traffic infrastructure and constitutional reforms.
When it comes to GDP growth, the bottom was reached already in the second quarter of this year. During 2009, GDP should shrink by 4 ½% which is much less than consensus economists expected a couple of months ago. In 2010, I predict German GDP to increase in the range of 1 ¼-1 1/2%. This is quite optimistic in relation to current circumstances – but still below potential output.
Read more at professor Fromlet’s own blog (in Swedish)
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