No Reason for Complacency

The Federal Statistical Office has released its initial calculation for growth in German gross domestic product (GDP) in the third quarter. Compared to the previous quarter, price-adjusted GDP in Germany has grown by 0.1 per cent. The risk of recession has thus been averted for the time being. After GDP had dropped by 0.1 per cent in the previous quarter, a continuation of the negative growth rate in the third quarter would have fit the technical definition of recession. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments on the Federal Statistical Office’s calculation.

“The current figures give no reason for complacency. For the state of the German economy, it is irrelevant whether quarterly growth is slightly above or below zero. Rather, we should be concerned about the downturn in the long-term growth outlook projected for Germany. The absence of a technical recession is a good thing, pouring oil on the troubled waters that were stirred by discussions around a make-shift economic recovery package.

Still, economic policymakers should take the time to soberly identify and tackle the veritable obstacles that hinder a sustainably higher level of growth. There are three prominent obstacles to be addressed: Firstly, the marginal tax rates for employees, which are far too high. Secondly, there’s the decreasing international competitiveness of the German corporate tax system. Thirdly, we are yet to see solutions for the challenges posed by the baby boomer’s upcoming retirement wave.”