Throughout the eurozone crisis, Germany has steamed ahead like a locomotive. Yet the economy’s sharp contraction in the final quarter of 2012 shows that the country may have entered a phase of slower growth. Last year, national income grew 0.7 per cent. This is above many European countries, but well below the 3 per cent growth achieved in 2011.
True, net exports remained buoyant in spite of a slowdown in the global economy. And while private investment fell sharply in the three months to December, surveys of business confidence show that investors’ expectations have remained sanguine. Yet forecasts for 2013 have been slashed across the board. Berlin predicts the economy will expand 0.5 per cent – half of what it had envisaged only a few months ago.
Berlin’s budgetary position is strong enough to allow for a fiscal boost. The public sector as a whole is in surplus and the debt level manageable. While the federal government is marginally in the red, Berlin has met its self-imposed “debt brake” with four years to spare. Expansionary fiscal policy – for example, a cut in consumption taxes – would put the locomotive back on track. It would also help the rest of the eurozone, since some of the extra cash would be spent on imports. In most countries, the prospect of an election would encourage the government to abandon its thrift. But this is not the case in Germany. Voters broadly approve of Angela Merkel’s parsimony and of her management during the crisis. The chancellor’s popularity is at a record high. As things stand, the political calculations imply that she will not change tack.