German deficit forecast at 1.75% in 2024, says stability council

Germany’s general government deficit is forecast to be around 1.75% of gross domestic product in 2024, falling to around 1% in the next year, said the German stability council, which coordinates federal government and state finances.

The structural government deficit, which is adjusted for cyclical and certain one-off effects, is expected to be around 1.25% of GDP in 2024, falling to around 0.75% in 2025 and rising again slightly in the following two years, the council added on Monday.

At the end of the projection period in 2028, the deficit should be at around 1% of GDP, according to estimates by the council, whichsafeguards the long-term sustainability of public budgets.

The council’s advisory board considers the projected deficit ratios to be plausible but sees a considerable need for restrictive fiscal policies to actually achieve them.

“A moderately restrictive fiscal policy not only acts as a brake on inflation. It also makes it possible to create sustainable scope for investment,” German Finance Minister Christian Lindner told a press conference on Monday after the council meeting.

The council noted, however, that Germany will not comply in the projection period with EU fiscal rules, known as the Stability and Growth Pact, which establish a ceiling for a structural deficit of 0.5% of GDP.

The German finance ministry anticipates difficult preparations for 2025’s draft budget, as further cuts to spending will be needed.

The ministries had until last week to outline their spending wishes but also make savings proposals. All ministries submitted their plans.
The majority of the ministries sent sensible proposals. “That is very welcome,” Lindner said.

However, a handful of ministries have excessive spending wishes, he added, in reference to five of the ministries, without naming them.

These include the Green-led Foreign Ministry as well as the ministries for development and defence, both led by the Social Democrats (SPD). The Ministry of the Interior and the Ministry of Labour – both of which are also led by the SPD – could also be the subject of difficult negotiations.

“There are individual departments that have submitted exorbitant wish lists – Christmas, Easter and birthdays combined, so to speak,” Lindner said. “That is not acceptable.”

The finance minister said Germany’s economic growth would not be enough to spend tax money abroad.

“Our economic strength is not sufficient to completely fulfil the requests of individual ministries for commitments abroad,”Lindner said, without giving figures on the additional spending requests.

The German government forecasts 0.3% gross domestic product growth this year.

Lindner said international cooperation is not sustainable and is only possible in periods of cyclical economic strength.

He highlighted that the focus at the moment should be in supporting Ukraine in its defence against Russia.

There will be further political discussions in the coalition government of the SPD, Greens and pro-business Free Democrats (FDP) until the cabinet approves the first draft on July 3, before the summer break.
Source: Reuters (Reporting by Maria Martinez and Christian Kraemer, Editing by Miranda Murray, Ed Osmond and David Gregorio)