German Economy Ailing – Reform of the Debt Brake Is No Panacea

Cyclical and structural factors are overlapping in Germany’s sluggish overall economic development. Until recently, there have been more headwinds than tailwinds from both the external and domestic economy. A low momentum recovery is likely to set in after spring. Net immigration has stabilised the labour force substantially; the productivity of immigrants remains subdued though due to integration problems and qualification mismatches. While a mild reform of the debt brake is advisable, a reorganisation of the overall fiscal constitution to better shield municipal investment activity from cyclical budget shortfalls is much more important.

01. April 2024

Authors Timm Bönke Oliver Holtemöller Stefan Kooths Torsten Schmidt Timo Wollmershäuser

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