Economic Council put forward proposals to counter economic downturn
Ippubblikat: 19 January 2009
On 12 November 2008, the German Council of Economic Experts (Sachverständigenrat, SVR [1]) published its annual report (in German) [2], which includes its outlook for 2009. According to the experts, the turbulence in the global economy – which has rocked the financial markets in several waves since 2007 and had a negative impact on the real demand in many countries across the world – has also accelerated the cyclical downturn of Germany’s strongly export-dependent economy. Nevertheless, aggregate output is expected to rise by an annual rate of 1.7% in 2008 due to a robust performance in the first quarter of that year. In view of recent developments, however, SVR predicted that the German economy would slip into a recession by the end of 2008.[1] http://www.sachverstaendigenrat-wirtschaft.de/[2] http://www.sachverstaendigenrat-wirtschaft.de/gutacht/ga-content.php?gaid=53
In view of the global economic downturn, the German Council of Economic Experts expects that the German economy will at best stagnate in 2009. The experts have proposed short-term measures to stimulate domestic demand and increase potential output. They are also calling for further labour market reforms to combat high unemployment. While the social partners welcome the proposals for stimulating domestic demand, they are divided over the proposed labour market reforms.
On 12 November 2008, the German Council of Economic Experts (Sachverständigenrat, SVR) published its annual report (in German), which includes its outlook for 2009. According to the experts, the turbulence in the global economy – which has rocked the financial markets in several waves since 2007 and had a negative impact on the real demand in many countries across the world – has also accelerated the cyclical downturn of Germany’s strongly export-dependent economy. Nevertheless, aggregate output is expected to rise by an annual rate of 1.7% in 2008 due to a robust performance in the first quarter of that year. In view of recent developments, however, SVR predicted that the German economy would slip into a recession by the end of 2008.
Outlook for 2009
In its forecast (in German, 1.33Mb PDF) for 2009, SVR expects that aggregate output will at best stagnate (see Table). As a result, employment growth and the notable decline in the total number of unemployed people – both of which have accompanied the recovery of the German economy since 2005 – will come to a halt. The experts concede, however, that their outlook is subject to a high level of uncertainty with pronounced downside risks.
| 20081 | 20092 | |
|---|---|---|
| Gross domestic product (GDP)3 | 1.7% | 0.0% |
| Domestic employment4 | 40.30 | 40.22 |
| Registered unemployed4 | 3.27 | 3.30 |
| Employees4,5 | 27.48 | 27.43 |
| Unemployment rate | 7.8% | 7.9% |
| Consumer prices3 | 2.8% | 2.1% |
| General government balance | -0.1% | -0.2% |
Notes: 1 estimate; 2 forecasts; 3 change on previous year; 4 millions of people; 5 subject to social security contributions.
Source: SVR Annual Report, 2008
SVR proposals
Given the turbulence in the global financial markets, SVR makes the recommendation (in German, 779Kb PDF) that the regulation of these markets be given an enhanced international dimension in order to significantly reduce the likelihood of global financial crises in the future. Moreover, the national systems of financial market regulation need to be reviewed.
In addition, the council has issued a call (in German, 592Kb PDF) to the government to initiate a growth-orientated policy aligned with short-term needs which can both quickly stimulate domestic demand and increase potential output. For this purpose, the experts favour, among other things, investments in public infrastructure, such as early childcare facilities, and the road and railway networks. They recommend that the package constitute between 0.5% and 1% of gross domestic product (GDP).
Although employment figures reached an all-time high in November 2008, people who are long-term unemployed had not so far benefited from the recovery of the labour market as much as other groups. In addition, the labour market prospects of core employees and fringe employees – such as marginal part-time and temporary agency workers or those on fixed-term employment contracts – have diverged over the last few years. Therefore, SVR has firstly made the recommendation (in German, 860Kb PDF) that employment protection for regular workers be substantially revised. Secondly, it is proposing that the tax privilege for marginal part-time jobs be abolished. The SVR experts are also calling for the implementation of a ‘wage-plus-top-up benefit system’ (Kombilohnmodell) and are opposing the introduction of minimum wages.
Reactions of social partners
In a joint press release (in German), the Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA) and the Federation of German Industries (Bundesverband der Deutschen Industrie, BDI) welcomed SVR’s proposals for stimulating domestic demand and for further reforms of the labour market.
In another press release (in German), a board member of the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB), Claus Matecki, spoke in positive terms about SVR’s recommendations to stimulate demand. However, Mr Matecki pointed out that the proposed target fell short of what was needed and of the targets that had been announced in other countries. Moreover, he opposed any moves towards any further deregulation of the labour market.
Oliver Stettes, Cologne Institute for Economic Research (IW Köln)
Il-Eurofound jirrakkomanda li din il-pubblikazzjoni tiġi kkwotata kif ġej.
Eurofound (2009), Economic Council put forward proposals to counter economic downturn, article.
