Germany 2004: Only a transitory economic stimulus from moving tax cuts forward
In summer 2003 the German economy once again did not overcome the stagnation, which by now lasted three years. Only by the end of this year the German economy will begin to receive stronger support from a then further improved world economy. In the past months both US and European monetary policy have provided sufficient liquidity by lowering interest rates. In the USA, additional support is provided by fiscal policy; tax reductions and rebates increase domestic demand. Overall, Gross Domestic Product in the US will increase by 2.1% this year; in the euro area GDP will merely expand by a modest 0.8%. For Germany one of its key sectors will not be able to lift the economy as usual and GDP, when compared to last year, will only stagnate. Provided by the brought forward tax reform 2000 the coming year will begin with a stimulus to the German economy. The tax reductions, though, will have limited effect on aggregate production, as the increased consumption will not be able to stimulate investment. Accounting for calendar effects GDP in Germany will increase by at least 1% in 2004 compared with this year, but due to several additional working days in 2004, the unadjusted rate of expansion will be 1.7%. No substantial improvements are expected for the job market.
