MeterIn the first half of this year, billions of euros in government spending during the new crown pandemic plunged Germany’s national budget into a deeper deficit. As the Federal Statistical Office announced on Tuesday based on preliminary data, the total expenditures of the federal government, states, municipalities and social security funds exceeded the amount received by 80.9 billion euros. Compared with total economic output, the deficit is 4.7%.
This is the second highest negative value in the first half of the year since unification. A deficit of 47.8 billion euros in the first half of 2020
The impact of the pandemic
In the 2020 Covid-19 crisis, the German government reported its deficit for the first six months and the whole year for the first time since 2011. After the pandemic began in March 2020, the country supported the economy with billions of dollars in economic aid. The federal and state governments have only recently decided to extend the financial aid (Bridging Aid III Plus) that lasts until the end of September and to facilitate access to short-term work allowances.
In the first half of 2021, governments at all levels will experience capital deficits. It is understood that expenditures on new crown epidemic relief, hospital compensation, vaccines and protective equipment, short-term work benefits and child bonuses have made a significant contribution to the increase in government spending.
According to estimates by the Deutsche Bundesbank, despite the expected strong economic growth, the annual deficit may expand. The central bank wrote in its latest monthly report that it may exceed 5% of GDP (previous year: 4.5%). “However, the main reason for the increase is the unjustified measures of the new crown crisis-such as partial cancellation of the solidarity surcharge,” it said.
Due to the deficit, Germany is not threatened by the troubles from Brussels. Due to the corona crisis, EU countries suspended the Stability and Growth Pact for the first time, that is, the budget deficit must not exceed 3% and the total debt must not exceed 60% of GDP.
Consumption drives the economy
After the coronavirus lockdown at the beginning of the year, the German economy accelerated again in the second quarter. Between April and June, GDP increased by 1.6% compared to the previous quarter. In preliminary estimates, the Wiesbaden authorities assumed a growth rate of 1.5%. Compared with the fourth quarter of 2019 (the quarter before the outbreak of the new crown epidemic), economic output still fell by 3.3%.
Most importantly, consumer spending and government consumer spending following the end of the coronavirus lockdown have boosted the economy. The restrictions on the fight against the coronavirus have been gradually relaxed since May.
