German budget surplus hits €24bn

24 Feb 17

Germany’s budget surplus has hit an almost two-decade high, at €24bn, bolstered by tax receipts from strong employment.

 

The figure was announced by the country’s official statistics agency yesterday, alongside data on the country’s growth at the end of 2016 which showed it overtook the UK as the fastest growing economy in the G7.

The agency said that the country’s pension funds saw the largest surpluses (€8.2bn), followed by the central government (€7bn), state governments €4.7bn) and local government (€3.1bn).

“Major factors on the revenue side were a large increase in income and property tax payments and the good employment situation, leading to a considerable growth in social contributions,” it said in a statement.

While the central government surplus has actually declined since last year, when it hit €10bn, state governments substantially increased theirs, which stood at €400m.

German states have been cutting spending and raising taxes for years in a bid to comply with the rules of Germany’s debt brake, which requires states to completely eliminate any underlying deficit by 2020.

But in implicit nods to Germany and other nations with healthy public finances, economists from some of the world’s financial institutions have been urging those countries that are able to loosen their belts and boost national and regional economies with productivity-driving investments.

The German economy was also criticised by the European Commission this week for being too strong. It said the country’s current account surplus – which means the country exports more capital, goods and services than it imports – has regional consequences.

“Addressing the surplus has implications on the prospects of the rest of the euro area because more dynamic domestic demand in Germany helps overcoming [sic] low inflation and ease deleveraging needs in highly-indebted member states,” the commission’s statement said.

It too highlighted the low proportion of public investment to GDP in Germany considering the country’s “fiscal space”, accusing Germany of saving too much.

Jennifer McKeown, European economist at analyst firm Capital Economics, however warned that rising inflation and political risk abroad could hit the consumer confidence supporting the German economy.

“In all, the German economy remains in good health,” she said. “But we doubt that it will go from strength to strength and envisage a slowdown in growth from 1.8% in 2016 to about 1.3% this year.”

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