Demand: Release the debt brake
IMF expects German growth from 2025
28.05.2024, 15:09
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According to the IMF, Germany will remain at the bottom of the list of the largest economies this year. The IMF is much more optimistic about next year. However, important new investments will only be possible if the debt brake is relaxed.
The International Monetary Fund believes that Germany will again achieve significantly higher growth rates in the period 2025 to 2026. The economy should therefore grow by 1 to 1.5 percent, the IMF announced. Last year, the German economy shrank, and this year only a meager increase of 0.2 percent is expected. This puts Germany at the bottom of the list among the seven largest industrial nations in the world.
Because inflation rates are likely to be significantly lower, the IMF expects the economy to gradually recover over the course of the year. This should be driven by private consumption, according to the current country report for Germany. The IMF pointed to rising real wages. The international financial organization recommended that the federal government increase investments, for example in climate protection and digitalization. Bureaucracy also needs to be reduced. In addition, more childcare places are needed in order to better integrate women in particular into the labor market in view of the shortage of skilled workers.
The IMF praised the traffic light coalition of the SPD, the Greens and the FDP for their response to the lack of Russian gas supplies – aid for consumers and the development of new energy sources. This helped to bring energy prices down again and bring inflation under control. The IMF sees even more serious political conflicts in the world as one of the biggest risks, as was recently the case after the Russian attack on Ukraine or the renewed Middle East conflict.
IMF: Remove tax benefits and loosen debt brake
The financial regulator once again spoke out in favor of a moderate reform of the strict debt brake, which only allows the federal government to take on new debt amounting to 0.35 percent of economic output. The reason given was the large investment backlog. The need for spending will increase in the coming years. The debt limit could be relaxed by around one percentage point and the debt ratio could still continue to fall. The IMF stressed that the government should also consider eliminating subsidies or tax benefits that are harmful to the climate.
However, a reform of the debt brake is considered unlikely because it would require a two-thirds majority in parliament. Federal Finance Minister Lindner is the biggest opponent of a reform of the debt brake in the traffic light government and refuses to relax it. In circles in his ministry it was said that the recommendations on the debt brake could not be followed. However, this could endanger the new European debt rules.
“Scaling back the debt brake also carries the risk of fuelling inflation, which has only just begun to fall. Higher debt also causes higher costs. The investments planned in the budget are already at record levels, but not all of the funds can be spent.” Increasing private investment must be a priority.