New data on the German balance of trade is set to be released today and will likely show the trade
New data on the German balance of trade is set to be released today and will likely show the trade surplus dropping by roughly €2 billion.
The plummet largely results from a corresponding drop in global demand. German GDP fell by 2.2% in the first quarter and may fall by a further 10% in the second. Manufacturing output similarly declined by 7.9%. As the economy re-emerges from lockdown, business confidence remains cautiously optimistic. Berlin has abandoned its famous fiscal stringency and instead opted for expansionary policies. The federal government plans to stimulate consumer spending with €130 billion in disbursements to individual households as well as investments in clean energy, educational technology, and digital innovation. The VAT is also due for a substantial reduction.
Germany’s plans may encourage other European countries to adopt a similar expansionary strategy. France, for instance, may also cut its VAT. However, harder-hit nations with high levels of debt, such as Italy and Spain, cannot afford a stimulus of the same scale. Therefore, the passage of the EU’s recovery plan will be key to ensuring any recovery, especially in southern Europe, over the next two years.
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