Earlier today figures showed that German industrial orders fell double what analysts had expected in August as Europe’s biggest economy continued to slow, pushing it ever closer to a recession. German factory orders fell 0.6% from the previous month and 6.7% year-on-year. Analysts had predicted a fall of 0.3% and 6.4% respectively.
The figures will come as no surprise to one of Germany's leading economic institutes, who last week slashed their growth forecasts for this year and next, blaming increased business uncertainty and weaker global demand for manufactured goods. The BDI industry association cut its outlook for the German economy to +0.5% this year and +1.1% in 2020. In April the institute’s estimates were for 0.8% and 1.8% respectively, both higher than the government figures published in the same month. The institute also called on Markel’s government to reverse its policy of incurring no new debt even if the growth outlook deteriorates.
Under the current German debt brake rule, Merkel’s government can take on new debt up to 0.35% of economic output. At the current rate, this would equate to EUR5bn in 2020, approximately EUR8.5bn in 2021 and EUR9.7bn in 2022. These figures are all after money earmarked for special purpose funds have been taken into account. However, despite pressure from home and abroad, the German centre-right government has vowed to stick to its policy of not ramping up any new debt. Olaf Scholz, the Finance Minister said after the figures that Germany would be able to cope with economic crisis, however, he did not expect any downturn to be as severe as it was in 2008/2009, telling reporters ‘We are well prepared because we have decent financial resources so if there is an economic crisis, we can take countermeasures but at the moment we're only seeing slower growth’.