Structural, cyclical (& one-off) and interest rate component
A breakdown analysis into a structural, cyclical (& one-off) and interest rate
component reveals that only roughly one-third of the improvement in the general
government fiscal balance (relative to GDP) between 2010 and 2016 (from –
4.2% to +0.8% of GDP) can be attributed to structural (i.e. Permanent)
adjustments to revenues and expenditures.
This means that around two-thirds
of the fiscal improvement are entirely owed to the sharp decline in interest
payments and additional tax revenues (resp. Lower expenditures) from strong
economic growth as well as the fading of one-off budgetary effects (see chart
33). Consequently, the weal and woe of German public finances hinges to a
large extent on the growth and interest rate outlook.
As we do not expect the
economy to slip and the ECB’s exit from its ultra-loose policy ought to be very
slow, the German public sector budget should continue to receive a tailwind
from the economy and interest rates in the years ahead.
EU Forecast
euf:ba18h:128/nws-01