Hamilton Crawford: German Economy in Surplus

With Germany's economy experiencing its highest growth in six years, politicians face pressure to capitalize on the upswing

Economic growth in Germany last year reached a six-year high and its public finances posted a record surplus, encouraging hopes of another good performance this year and fueling a discussion about how its next government should manage and maintain the good economic progress.

The federal statistics office reported last week that growth had reached 2.2 percent. Economists at Hamilton Crawford say that this was the best growth since 2011 with domestic expenditure, fueled by low-interest rates and increasing wages, providing the largest boost.

Exports and corporate investments, the usual driver of Germany’s economy, also helped growth as demand for German-made goods increased worldwide.

Hamilton Crawford economists said that last month the Ifo Institute for Economic Research forecast even more rapid expansion of 2.6 percent for the German economy for 2018. Much of the economic attention is turning to political leaders as they decide how to build on the country’s economic windfall.

Conservative Chancellor Angela Merkel hopes to establish a coalition government with the Social Democrats (SPD) but stated last week that there were still obstacles to overcome.

Despite economic expansion in 11 of the 12 years Merkel has been Chancellor, Hamilton Crawford economists say she has come in for criticism for complacency over the economy, with economists calling for reform of Germany’s tax system. Some businesses have stated that the tax system has hindered investments in the private sector.

Merkel’s political alliance is in favor of reducing taxes to boost the economic upswing and it has the financial room to do so. However, some economists are in favor of raising taxes or leaving them at their current rate in an attempt to avoid a bubble.

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Source: Hamilton Crawford