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German fiscal expansion is unlikely despite concerns

Wednesday, August 21, 2019


The economy shrank by 0.1% quarter-on-quarter in April-June; further shrinking in the third quarter would mean a technical recession. Since growth is not likely to pick up much in the next two to three quarters, the economic outlook for Germany is gloomy, with potentially significant political consequences.


  • Germany’s hard-line stance against ambitious euro-area reform is likely to become more entrenched.
  • The implications of a German slowdown for the EU-26 will increase the chances of the ECB using unconventional policy to add stimulus.
  • A recession is likely to have negative effects on Germany’s defence spending, despite US pressure on Berlin to contribute more towards NATO.

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