BRUSSELS, Oct 21 — The European Union’s statistics agency revised up Germany’s budget surplus for 2018, data released today showed, following a trend that could signal Berlin’s plan to spend more next year may end up delivering less than expected.
The data may not bode well for euro zone’s economic growth prospects, as the bloc is facing risks of a protracted slowdown, which many economists say could be countered only with a significant increase in governments’ spending — especially by Germany, the euro area’s largest economy.
Eurostat said Germany’s revenues last year exceeded expenses by more than previously estimated, allowing Berlin to post a budget surplus of 1.9 per cent of its output, above the 1.7 per cent that Eurostat had calculated in April.
The euro zone overall recorded a 0.5 per cent deficit, unchanged from Eurostat’s previous estimate as Germany was offset by higher-than-expected spending in other countries, such as Italy, which posted a 2.2 per cent deficit, above the 2.1 per cent estimated earlier.
The 19-country currency bloc’s debt was revised up to 85.9 per cent of gross domestic product from the 85.1 per cent previously estimated.
The upward revision of Germany’s budget surplus confirms the trend in surprise overshoots in data from Berlin. In 2017, the country’s surplus was raised to 1.2 per cent of GDP from the 1.0 per cent initially estimated.
In 2016, the final surplus was recorded at 1.2 per cent of output from 0.9 per cent previously estimated.
If this trend continues next year, Germany’s planned loosening of the purse strings may also result in being smaller than forecast, in a blow to those who are calling for more spending to tackle the economic slowdown of the euro zone.
Under draft budgetary plans prepared by EU governments this month, the overall easing for the euro zone would be 0.3 per cent or 0.4 per cent of GDP in 2020, with a positive effect on growth up to 0.2 percentage points, Greg Fuzesi, an economist at J.P. Morgan, estimated.
Half of the planned easing would come from Germany, Fuzesi said, arguing that it may be however lower than currently expected.
Despite frequent calls from the European Central Bank and many governments to step up spending, “the amount of fiscal easing in the draft national budgets for 2020 is quite limited”, Fuzesi said.
“Germany has pledged to reduce its structural surplus from 1.25 per cent of GDP this year to 0.5 per cent next,” Andrew Kenningham of Capital Economics said. “But it promised to reduce its surplus by a similar amount last year and did not do so,” he added.
He concluded that there will be “no fiscal boost in 2020” in the euro zone. — Reuters
