According to the analysts at Danske Bank, the likelihood of an imminent German fiscal stimulus is low for now, but the German government is under heavy pressure to roll out one in a bid to spur economic growth.
Key Quotes:
“In Germany, Finance Minister Ola Scholz hinted at a EUR50bn (~1.5% of German nominal GDP) fiscal spending package in case of recession, although it is not imminent.
The German government is under heavy pressure by many to ease fiscal policy, as the German economy is struggling (contracted in Q2) and there is a lack of safe assets (bonds) in the market.
Unfortunately, the fact that Scholz says a package is not imminent also highlights the time lag problem with fiscal policy: It takes time for politicians to recognize the need for fiscal easing and vote in favor of a specific package, and hence when it has an impact on real activity.”
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