Midterm Projection: Economic Development and the Public Budget in the Years 2011 - 2015
Wirtschaft im Wandel,
In 2010 economic activity in Germany improved steadily. While global trade increased in the first half of the year – and, thus, German exports – domestic demand became increasingly important. Private Investment recovered and – even more important – consumption contributed to economic growth. Moreover, employment reached an all-time high and unemployment decreased further during the year.
Until 2015 economic growth will keep to be relatively high. German external trade will still gain momentum by the development of global trade. However, economic development will be driven more and more by domestic demand. Interest rates will remain relatively low and stimulate investment activity. Moreover, unemployment will continually shrink, partly reflecting demographic developments, but partly mirrored in increasing employment. Due to a higher degree of employment security and rising wages consumption will gain momentum. Real GDP will increase by 2.3% in 2011 and by 1.7% in 2012. From 2013 – 2015 it will rise by 1½% on average.
While the German economy will gain strength, public budgets will clearly improve. In 2010 the deficit ratio exceeds the Maastricht threshold only slightly; in relation to nominal GDP the German budget deficit was about 3.2%. Concerning the high fiscal stimulus, mainly given in the years 2009 and 2010, the deficit ratio is surprisingly low. While income and wage taxes as well as the receipts from social security contributions already increased, unemployment benefits already declined substantially.
The midterm projection shows a favorable development of public budgets. While employment remains high and unemployment continually decreases, the wage tax and the social security contributions will boost revenue. On contrast the same development will lessen public expenditure, especially transfers.
This projection relies heavily on the assumption that fiscal policy will trace its consolidation plans. For instance, it is assumed that the federal level will implement their plans from summer/autumn 2010 and that there will be no additional measures. In this case, in 2015 the German public budget will show a surplus of ¼% in relation to GDP.
Direct investments in Central and Eastern European acceding countries: Repercussions for the German labor market?
Wirtschaft im Wandel,
In the light of the high unemployment in the Germany we ask whether German FDI to the CEEC is motivated mainly by cost differentials and takes the form of vertical investment which leads to an increased pressure on blue collar jobs in Germany. The analysis shows that German direct investment abroad is motivated both by reasons of market access and by cost differentials. About 60 % of all German FDI is directed toward the service sector. Here, no negative impact on the German labour market is to be expected. About 40 % of total German FDI may partly be motivated by cost advantages and lead to outsourcing. In the three most important CEEC recipient countries (Poland, Czech Republic and Hungary) about half of all FDI is directed toward the manufacturing industries (chemical industry and automobile industry in particular). This supports the hypothesis that vertical investment to these CEECs has been directed towards sectors that display cost advantages (i.e. low labour costs) which results in a decrease of the number of blue collar jobs and their respectives wages.