Despite stable, broad-based economic growth, the fiscal policy stance will
remain expansive and thus pro-cyclical. The federal government’s additional
spending and tax reductions will add up to about EUR 46 bn in the current term
2018 to 2021. This would by and large equate to the government’s fiscal leeway
in the total estimated amount of about EUR 46 bn without providing reserves for
presumably higher payments to the EU and possible financial obligations from
extended subsidies to the public pension and the statutory health insurance
In a fair weather scenario the new government will be able to proceed without
taking on new (net) debt and thus to stick to its (especially the CDU’s)
respective goal. But ignoring major budget risks is problematic. The current
benign environment with low interest and high growth rates by nature does not
allow for longer-term spending obligations in social and pension policy.
Demographic trends and the structural changes related to digitalisation and
global competition would require careful resource management to keep the
German economy on track.
Although subject to a high degree of (policy) uncertainty, we expect the fiscal
surplus to decline from a record high 1.2% of GDP in 2017 (Maastricht
definition) to below 1% of GDP in 2018/19 due to an increasing pro-cyclical
fiscal policy. This notwithstanding, the government-debt-to-GDP ratio should fall
further rapidly, from an estimated 64.4% in 2017 to clearly below 60% by 2019,
primarily due to solid economic growth.