By Christoph Steitz and Tilman Blasshofer
FRANKFURT (Reuters) – Germany’s budget crisis has dealt another blow to an already battered economy, the president of the ZEW economic research institute said on Monday, and this is likely to be reflected in its upcoming monthly survey on investor morale.
Achim Wambach’s comments add to concerns over the state of Europe’s largest economy following last month’s ruling of the German constitutional court that tore a 60-billion-euro ($65 billion) hole into Berlin’s finances.
“In economic terms, this is yet another sting,” Wambach told Reuters, pointing to uncertainty over how Germany’s transformation into a green, low carbon economy could unfold.
“The German economy is not doing well.”
The last of the closely-watched ZEW indicators, released shortly before the landmark ruling, showed that investor morale had improved more than expected in November, entering positive territory for the first time since April.
The next batch of critical ZEW data is scheduled to be published on Dec. 12 and Wambach said these are expected to reflect the uncertainty of the last couple of weeks.
“The survey will run until next week. The verdict is in, the financial experts can process it. The studies are already available, including the first estimates of what this means for the economy. I assume that this will also be reflected in the expert statements or the mood, the opinion of the experts.”
Deutsche Bank last week lowered its forecast for Germany, now expecting gross domestic product (GDP) to contract by 0.2%.
It said the economy was subject to a “perfect storm” due to the high court ruling that the centre-left government’s decision to reallocate 60 billion euros of unused debt from the pandemic era to its climate and transformastion fund was unconstitutional, and to subsequent budget cuts.
The IMF has forecast Germany’s GDP to shrink by 0.5% in 2023, hit by the repercussions of last year’s energy crisis arising from the war in Ukraine, and the ensuing wave of inflation that has damaged German competitiveness.
Among the feared consequences are increasing moves by companies to pare back their local presence and expand elsewhere, avoiding high taxes and energy costs that have put Germany at a disadvantage to other countries, such as the United States.
Wambach, who in November spent some time in the United States, said the issue of making Germany more attractive as an industrial location needed to have a higher priority, citing France as a place where this is the case.
“(President Emmanuel) Macron invites international companies to the Elysee Palace and says, ‘Invest in France’. In the U.S., there’s a large sign on the French embassy saying, ‘Come to France, invest in France’.”
($1 = 0.9206 euros)
(Reporting by Christoph Steitz, Tilman Blasshofer and Timm Reichert)
