Advanced Search
MyIDEAS: Login to save this paper or follow this series

Crisis continues to smoulder

Contents:

Author Info

  • IMK Düsseldorf
  • OFCE Paris
  • WIFO Wien
Registered author(s):

    Abstract

    The German economy achieved only a weak growth performance in 2012. GDP grew by 0.7 % on annual averages and by just 0.4 % over the course of the year. The prospects during the forecast period are mildly optimistic. The global economy will initially pick up only slowly, but the growth dynamic is expected to be stronger next year, boosting German exports. In the wake of the apparent stabilisation of the Euro area, uncertainty will gradually dissipate and investors will increasingly drop their wait-and-see attitude. Private consumption will, moreover, bolster growth in both the current and the coming year. The Institutes forecast GDP growth of 0.9 % on annual averages this year, a figure which understates the underlying dynamic: comparing the fourth quarter of 2013 with that of 2012 growth will reach a very much more substantial 1.9 %. In 2014 GDP growth is expected to be 1.5 %. The unemployment rate will remain more or less unchanged over the two years, at 5.1 % and 5.0 % on ILO definitions and 6.8 and 6.7 % respectively on German national definitions. Medium-term simulations indicate that the German economy is likely to remain constrained by the impact of the euro area crisis for an extended period. There are two main causal channels: German exports to the euro area will continue to be squeezed severely by the austerity policies being pursued across Europe, and even in Germany fiscal policy is expected to be contractionary, dampening the growth of incomes and domestic demand. Growth is expected to average 1.3 % in the years to 2017. Alternative scenarios show that by means of expansionary policies, including a European investment programme, far more favourable results could be obtained in the euro area as a whole and its member states individually than in the baseline scenario.The recession in the crisis-hit countries and the current stagnation in the remaining EMU member states must be overcome and give way to economic growth strong enough to increase capacity utilization and reduce unemployment. The necessary process of deleveraging must continue and public finances be put on a sustainable footing. At the same time, current account imbalances must be reduced and the financial sector stabilised. The current economic policy strategy, consisting first and foremost of fiscal austerity and a monetary policy rendered ineffective by country-specific risks, will almost certainly be unable to generate sustained improvements in these four key areas.A necessary condition for exiting from the crisis is to make monetary policy effective once more by re-establishing confidence in the government bonds of the crisis countries. This must be accompanied by a turnaround in fiscal policy. Fiscal consolidation must occur in such a way that it does not impinge negatively on aggregate demand. The Macro group proposes a European investment offensive. The crisis countries should receive external financing equal to 1 % of current GDP for a period of five years. This should be used to finance public investment and/or support for private investment. Member States with current account surpluses, especially Germany, should implement expansionary fiscal policy measures representing at least 1 % of GDP, such that they play the role of locomotive for the European business cycle. .

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.boeckler.de/pdf/p_imk_report_80e_2013.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Report with number 80e-2013.

    as in new window
    Length: 37 pages
    Date of creation: 2013
    Date of revision:
    Handle: RePEc:imk:report:80e-2013

    Contact details of provider:
    Postal: Hans-Böckler-Straße 39, 40476 Düsseldorf
    Phone: +49 211 7778 234
    Fax: +49 211 7778 4234
    Email:
    Web page: http://www.imk-boeckler.de
    More information through EDIRC

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 63-98 National Bureau of Economic Research, Inc.
    2. Carine Bouthevillain & John Caruana & Cristina Checherita & Jorge Cunha & Esther Gordo & Stephan Haroutunian & Amela Hubic & Geert Langenus & Bernhard Manzke & Javier J. Pérez & Pietro Tommasino, 2009. "Pros and Cons of various fiscal measures to stimulate the economy," BCL working papers 40, Central Bank of Luxembourg.
    3. Catherine Mathieu & Henri Sterdyniak, 2013. "Do we need fiscal rules?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 189-233.
    4. Alberto F. Alesina & Silvia Ardagna, 2009. "Large Changes in Fiscal Policy: Taxes Versus Spending," NBER Working Papers 15438, National Bureau of Economic Research, Inc.
    5. Ardagna, Silvia & Alesina, Alberto, 1998. "Tales of Fiscal Adjustment," Scholarly Articles 2579822, Harvard University Department of Economics.
    6. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR & CES & MSH, vol. 13(27), pages 487-545, October.
    7. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 233-297.
    8. Sebastian Gechert & Henner Will, 2012. "Fiscal Multipliers: A Meta Regression Analysis," IMK Working Paper 97-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. Francesca D'Auria & Cécile Denis & Karel Havik & Kieran Mc Morrow & Christophe Planas & Rafal Raciborski & Werner Roger & Alessandro Rossi, 2010. "The production function methodology for calculating potential growth rates and output gaps," European Economy - Economic Papers 420, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    10. Karl Aiginger & Matthias Firgo & Peter Huber, 2012. "Policy options for the development of peripheral regions and countries of Europe," WWWforEurope Policy Brief series 2, WWWforEurope.
    11. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
    12. Sebastian Dullien, 2012. "Is new always better than old? On the treatment of fiscal policy in Keynesian models," Review of Keynesian Economics, Edward Elgar, vol. 1(0), pages 5-23.
    13. Karl Aiginger & Olaf Cramme & Stefan Ederer & Roger Liddle & Renaud Thillaye, 2012. "Reconciling the short and the long run: governance reforms to solve the crisis and beyond," WWWforEurope Policy Brief series 1, WWWforEurope.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:imk:report:80e-2013. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.