Surprising growth in the German economy despite the Ukraine war

by time news
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The cash position of the German state improved significantly in the first half of 2022.

(Foto: Bloomberg/Getty Images)

Berlin, Düsseldorf Despite the consequences of the Ukraine war, the German economy grew surprisingly in the spring. The gross domestic product (GDP) rose by 0.1 percent compared to the previous quarter, as announced by the Federal Statistical Office (Destatis) on Thursday. In a first estimate, the Wiesbaden authorities assumed that economic output would stagnate.

Destatis President Georg Thiel said: “Despite the difficult global economic conditions, the German economy held its ground in the first two quarters of 2022.” Compared with the fourth quarter of 2019, the quarter before the start of the corona pandemic, it shows that GDP in Germany returned to the pre-crisis level for the first time in the spring.

According to the statistics office, the economy was supported in the spring by private and government consumer spending. Trade with other countries also increased overall. Although significantly fewer goods were exported to Russia in the second quarter than at the beginning of the year due to the impact of the war in Ukraine, companies reported stable exports overall.

Despite the disrupted supply chains around the world, 0.3 percent more goods and services were exported than in the first quarter. However, imports increased more sharply by 1.6 percent compared to the previous quarter.

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The Bundesbank expects that economic output will “roughly stand still” in the summer and that there could be a recession in the winter half-year as a result of the gas crisis. The Russian war against Ukraine, which has been going on for six months, will also weigh on the German economy for years to come, as economist Marcel Fratzscher recently told the Reuters news agency.

German government deficit decreases significantly in the first half of the year

Chief economist Thomas Gitzel from the Liechtenstein-based VP Bank points out that Germany only ends up in the last third of the euro zone comparison with mini-growth. Significantly stronger GDP growth was recorded in some places – for example in Spain (1.1 percent) and Italy (1.0 percent).

According to Gitzel, the German economy fared better in the second quarter than the pure growth figure would suggest: “Domestic demand rose sharply. However, the construction industry was a heavy burden. But with a view to the current quarter, the German economy is already in recession.” The massive increase in the cost of living is reducing purchasing power, while at the same time industry is also burdened with high energy costs and a lack of preliminary products.

Meanwhile, the cash position of the German state improved significantly in the first half of 2022. In relation to total economic output, the federal, state, local and social security deficits were 0.7 percent. This was announced by the Federal Statistical Office on Thursday based on preliminary calculations. By the end of June, the federal government, states, local authorities and social insurance together spent 13.0 billion euros more than they earned.

In the first half of 2021, the deficit was still 75.6 billion euros, which corresponded to a deficit ratio of 4.3 percent. While the federal government reported a minus of 42.8 billion euros, both the federal states (plus 16.6 billion euros), the municipalities (plus 5.7 billion euros) and the social security funds (plus 7.4 billion euros) wrote black this time Counting.

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Tax revenue increased by 11.6 percent in the first half of the year, exceeding the level before the corona crisis in the first half of 2019. “Corporate taxes played a large part in this,” according to the statisticians. Revenues from trade tax (plus 27.7 percent), assessed income tax (plus 24.8 percent) and corporation tax (plus 19.4 percent) recorded increases.

In addition, revenue from sales tax and import sales tax also rose under the influence of inflation (plus 15.5 percent). At the same time, spending increased only slightly as subsidies fell by 50.1 percent. “The reason for this was in particular the expiry of various corona measures,” it said.

The Bundesbank expects a deficit for the year as a whole, but this should be lower than in 2021 at 3.7 percent. “The reason is the fading fiscal burdens caused by the corona crisis,” says the current monthly report of the German central bank. This was reflected in the first half of the year in sharply rising tax revenues and falling pandemic spending. “As things stand at present, new burdens from the Ukraine war and measures to compensate for high prices will not offset this recovery,” the Bundesbank said.

More: Germany is stuck in the energy price trap – “Several companies in key industries will close”

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