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08 July 2008

EZA 853 Report: Germany




German budget – no sign of pre-election slippage.


The 2009 draft budget, presented 1st July, came in on the tight side, compared with what could have been expected in an election year.

Additional spending demands - notably from the environment, transport and economics ministries - have been widely deflected, allowing a reduction of the federal deficit by 0.1% of GDP to 0.4%.

Including budgets of local authorities and social insurance the general government deficit can be expected at €9 bn (0.3% of GDP) compared to €3 bn this year.

On a structural basis the budget draft implies fiscal tightening by 0.3% of GDP, leaving some room for tax cuts to counter cyclical weakness without endangering the overall objective to a balanced budget by 2011.


Asset conclusions: positive for German fixed income assets, implying a widening of intra EMU yield spreads. Also euro-positive, slightly negative for stocks.



© EZA

Documents associated with this article

EZA853.pdf


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