“The government did a lot right”

Today the Expert Council is handing over its report to the Federal Government. Council member Achim Truger finds the work of the federal government much praised. But he warns that a too quick return to the debt brake could stall the economy.

Achim Truger, member of the expert council for the assessment of the macroeconomic development

Mr. Truger, you are presenting your report at a phase in which we are again in a lockdown. What are the effects of the new restrictions on economic development?

If you look at the numbers, the effect seems paradoxical at first. Because we have corrected our forecast upwards compared to our previous forecast. It is true that we still have a severe recession this year, with economic output falling by 5.1 percent. But the unexpectedly strong recovery in the third quarter gave a strong boost, so that the new partial lockdown in the fourth quarter should not have such a strong impact. The closings in the hospitality industry and culture have a negative impact of 0.9 percentage points on the quarterly growth rate. In terms of the annual rate, however, this is only an effect of minus 0.2 percentage points. In the coming year, however, the recovery will now be weaker than expected.

What would be the consequences if the lockdown was extended to December?

Image: FAZ

Even if the measures had to be extended, this would not have any dramatic consequences. It would be much worse if it came to a situation like the one in spring, i.e. if industry were also dragged down due to falling export demand and disrupted supply chains. Then we would have a much stronger slump.

The international environment plays an important role for German industry. Are the risks currently increasing again?

It is very important to see the international component. The fact that the recovery in the third quarter was so strong is thanks in particular to exports, which have picked up very strongly. The comparatively good and rapid recovery of our European neighbors also played an important role in this. While China continues to support the recovery in this country, new risks are emerging around us in Europe with the increasing number of infections. It is now a matter of avoiding the mistakes of the past. Closing the borders again would be a mistake. If it is possible to keep the supply chains and trade intact, that will greatly help the German and European economy.

Image: FAZ

How has the federal government done in the pandemic so far? Are the Corona aid and the economic stimulus package suitable for leading the economy out of the crisis?

The government has put very extensive measures in place in record time – very different from the 2008/2009 financial crisis, when it initially reacted rather hesitantly. Short-time working, in particular, is something that many in the world envy us for. That averted a lot of damage to the labor market. However, you can certainly criticize individual points. The VAT cut is poorly targeted and is unlikely to have any major impact. However, extending the carry-back is a good solution. That could have been used even more. Overall, however, the government has done a lot right. The economic stimulus package will bring growth 0.7 to 1.3 percentage points higher this year alone and up to 0.7 percentage points more next year.

Does that also apply to the European level?

Yes, politics in Europe has also learned from the last crisis. Apart from the initial jerking, it reacted quickly. The packages that have been put together by the EU states are an important signal that we are standing together against the crisis. In the report, we see the reconstruction fund as an opportunity to increase productivity and growth through investments and reforms in the member states and to emerge stronger from the crisis together.

The members of the Expert Council (from left): Achim Truger, Veronika Grimm, Lars Feld, Volker Wieland and Monika Schnitzer
The members of the Expert Council (from left): Achim Truger, Veronika Grimm, Lars Feld, Volker Wieland and Monika Schnitzer: Image: Expert Council

In the past you have often criticized the federal government for investing too little. Advance investments of 10 billion euros are now planned in the economic stimulus package. Could it be a problem that funds are draining too slowly?