In the first annual economic report presented by the new Economics Minister Habeck, the federal government corrected its GDP forecast downwards. Two other topics attracted more attention.
A massive expansion of solar and wind energy should help to further develop the social market economy into a socio-ecological market economy.
After the Green Economics and Climate Protection Minister Robert Habeck presented an “opening balance sheet for climate protection” in mid-January, on Wednesday he Presentation of the annual economic report made his debut under his second hat, that of Economics Minister. In addition to an economic forecast, the annual report contains statements on economic and financial policy. Habeck, who is also Vice-Chancellor of the traffic light government made up of SPD, Greens and FDP, had to start with the admission that this year’s economic growth is likely to be lower and inflation higher than initially expected.
EEG levy should fall
The federal government is now assuming that economic output measured in terms of real gross domestic product (GDP) will only increase by 3.6 percent. Last fall, Habeck’s predecessor, Peter Altmaier, promised an increase of 4.1 percent. His successor justified the correction, which independent augurs also made in a similar way, with the fact that the corona pandemic will continue to affect the service sector in particular in the first quarter.
However, growth should accelerate as the year progresses, and economic output should return to pre-crisis levels in the second quarter. According to preliminary data, GDP rose by 2.7 percent in 2021 and fell by 4.6 percent in 2020.
Inflation, which has skyrocketed to an annual average of 3.1 percent measured in terms of consumer prices in recent years, is likely to be 3.3 percent this year. The report sees ongoing delivery bottlenecks as an important price driver, which would only gradually ease over the course of the year. In addition, there will be increased rates of increase in energy prices in the first half of the year compared to the previous year, because these prices only rose sharply in the course of 2021.
According to Habeck, the government wants to check whether and under what conditions the abolition of the EEG surcharge (surcharge on the electricity price to finance the promotion of renewable energies) planned for the beginning of 2023 can be brought forward.
measure wealth
A new feature of this year’s report is a special chapter with selected welfare and sustainability criteria from the five areas of economy, environment, education, social affairs and public finance. These are not intended to replace GDP as a benchmark, but to supplement it. Overall economic growth measured in terms of GDP growth is “a necessary, but by no means sufficient, prerequisite for sustainable prosperity, employment, participation and social security,” the statement said. Therefore, in a first step, indicators such as the proportion of women in management positions, the greenhouse gas intensity of GDP or research expenditure are also listed.
Economics and Climate Protection Minister Robert Habeck explains the annual economic report in Berlin.
The expansion of reporting is part of the claim of the “Ampel” to “further develop” the social market economy into a social-ecological market economy. Most of the measures mentioned are known from the coalition agreement and the opening balance sheet mentioned. This includes, for example, the pricing of greenhouse gas emissions as a central instrument for promoting a comprehensive transformation.
Some passages critical of capitalism and growth, which according to the German media could be read in a preliminary draft of the report, caused a stir. In the version that has now been published, however, the most sensitive formulations can no longer be found. Rather, it states, among other things, that the overall balance of the social market economy is clearly positive. The federal government is building on their tradition and trusts “fundamentally in decentralization and the price mechanism and thus market-based instruments”. At the same time, when it comes to climate protection, she does not want to rely solely on CO2-Set pricing, rather she sees this as “part of a comprehensive policy mix”.
Mixed reactions
When asked, the economist and “economic wise man” Veronika Grimm described the focus on the eco-social market economy as “right and important”. She also thinks it would be good to broaden the measurement of welfare. On the other hand, one must keep in mind that the GDP is an important variable that is also the basis for state decisions and the state’s scope for action.
Criticism came from the Association of Family Entrepreneurs. Its President Reinhold von Eben-Worlée welcomed the statement that climate change could only be combated with free market principles. But the report reads more like an “annual climate protection report with a sub-chapter on the economy instead of the other way around”. There is a danger that the proven system of the market economy “will be overwhelmed by its accompanying adjectives”.
Angry home builders
During a survey in the Bundestag, which Habeck had to face on the same day, criticism from the opposition was sparked less by the annual economic report than by one of the Vice Chancellor’s first concrete official acts: on Monday his ministry surprisingly announcedthat the federal funding for energy-efficient buildings provided by the Kreditanstalt für Wiederaufbau (KfW) would be temporarily suspended with immediate effect and that no new applications could be made.
The promotion of new buildings according to the efficiency standard 55 (EH55), which would have expired at the end of January anyway, will definitely be discontinued. Funding for refurbishment will be resumed as soon as appropriate budgetary funds are available, and decisions will be taken swiftly on how to deal with EH55 applications that have already been received but have not yet been answered and with applications to a more stringent standard. This led to an outcry in the real estate industry and among private builders, for whom some calculations became waste overnight.
Habeck said on Wednesday that the correction was so abrupt and brutal, was annoying and shouldn’t be repeated. In fact, he defended the move with reference to an announcement by the previous black-red government at the beginning of November that EH55 funding would be discontinued at the end of January. This led to an enormous flood of applications in January. The applications far exceeded the funds provided. It is correct that Finance Minister Christian Lindner rejected an increase in funds. The EH55 is about “overfunding”, since its specifications have long since become the standard in the new construction market. Necessary adjustments have been neglected in recent years.
You can contact the Berlin business correspondent René Höltschi Twitter Follow.