Housing policy concepts in Germany: Only minor overlaps between the plans of left-wing and right-wing parties
Germany's super election year 2021, Real estate
In terms of housing policy concepts in Germany, there are only minor overlaps between the plans of left-wing and right-wing parties.
In terms of housing policy concepts in Germany, there are only minor overlaps between the plans of left-wing and right-wing parties. The CDU/CSU, the FDP, and the AfD continue to support supply-oriented housing policies. The SPD, the Greens, and the Left prefer demand-oriented approaches. The CDU and the FDP promise to reduce price and rent pressure by providing additional supply and to offer incentives for renovation and retrofitting. People who are living in a rented home and do not want to move will probably find the plans of the SPD, the Left or the Greens attractive. Private households might see the ancillary costs of buying a home decline after the elections, as opposed to large-scale investors. Overall, none of the parties has prepared a comprehensive concept. And none of them has paid attention to what their demands may mean in terms of necessary labour, funds, space, etc. [more]
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Systemic complexity and criticality in economic forecasting
It is, once again, the season of the year when not only are we preparing for Christmas holidays and starting to think about new year resolutions, but economic forecasters are also offering their outlooks for the upcoming year. However, the last two years should have convinced even the most stubborn hedgehog that there is far less predictability, let alone certainty, around us than we like to believe. In particular, problems resulting from "system complexity" are, in our view, not sufficiently appreciated by forecasters and the recipients of these forecasts, alike. The critical assumptions, nota bene assumptions not predictions, driving – to a large extent – GDP and inflation forecasts for the next one or two years, are the future development of the COVID-19 pandemic and the – hoped for – gradual easing of supply bottlenecks, both almost textbook examples of system complexity. So are, probably, the Philips curve models used to forecast inflation. Let's face it, believing in inflation forecasts with exact numbers, even behind the decimal point, for several years out, is little different to believing in Santa Claus. [more]
Outlook 2022: New realities
Banking and financial markets, Economic and european policy, Germany's super election year 2021, Macroeconomics, Real estate, Sectors and resources
Barbara Boettcher, Eric Heymann, Jan Schildbach, Jochen Moebert, Marc Schattenberg, Marion Mühlberger, Sebastian Becker, Stefan Schneider
4% GDP growth in 2022, despite technical recession in winter half. A synchronous acceleration should result in annual GDP growth of 4%. In 2023, quarterly GDP growth will slow towards trend. In fiscal policy ambitious spending plans and debt brake commitment lead to open funding questions. Based on the previous fiscal regime, the fiscal deficit is set to narrow considerably. Still, the new government's big spending plans, which are not yet quantifiable, could drive deficits considerably higher. Inflation decelerating from 5%+ rates, but higher core rate more permanent. Carryover effects and cost pressures will keep CPI inflation elevated. In 2023, headline and core rates are unlikely to fall below 2%. German politics 2022: "Team Scholz" will focus on climate protection and sizeable corporate tax allowances for green and digital investments. German EU policy might be less fiscal orthodox and open to a cautious reform of the EU's fiscal rules. [more]
Trouble in the air
Economic and european policy, Germany's super election year 2021, Macroeconomics
Barbara Boettcher, Eric Heymann, Marc Schattenberg, Marion Mühlberger, Stefan Schneider
Another "COVID winter". GDP growth failed to accelerate further in Q3, as the supply shortages provided an increasing drag on industrial output. The supply chain issues will prevail throughout the winter half and only taper off very gradually during 2022. While private consumption was the growth engine in summer, the recent strong increase in the number of new COVID-19 infections will slow consumer spending during winter. Absent Q3 details we now expect GDP to stagnate in the winter half, but acknowledge the increasing risks of negative quarters. Given the upward revisions to H1 (published with the Q3 GDP flash) this would still result in an average growth rate of 2.5% yoy for 2021. Further upside surprises at all stages of inflation have, despite an increasing tightness in the labour market, not (yet) started a price-wage spiral. Also in this issue:	The next German government is in the making. [more]
Potential growth at risk - timely action is needed
Germany's super election year 2021, Macroeconomics
During the coming years, Germany's potential growth rate will come under increasing pressure from demographic developments, it looks set to slow to just below ¾%. Shrinking potential growth will dampen cyclical resilience and tend to reduce debt sustainability. The new government should focus even more on potential growth. After all, it would be the great binding theme between the efficient and at the same time climate-friendly economy, demographics and the megatrend of digitalization. In the short term, rising energy expenses and the regulatory shortening of the useful life of machinery and equipment have a similar effect to a negative supply shock. If efforts to seize the opportunity for new investment and the installation of adequate replacements fail, the production-relevant capital stock would shrink, thus reducing potential growth. [more]
More incentives and opportunities instead of more redistribution
The consequences of the COVID-19 pandemic, ambitious climate policies, persistently negative interest rates, and large-scale security purchases by the ECB are increasingly raising the issue of a fair distribution. Policymakers tend to focus on the symptoms in order to appease their voters – and in doing so, they often neglect the root causes. [more]
Our take on the federal election and its implications
Economic and european policy, Germany's super election year 2021
Barbara Boettcher, Marion Mühlberger, Stefan Schneider
With less than three weeks to go until the German federal election, we put together a succinct presentation to address the following questions:
#1: Is the SPD boom yet another spike in voter preferences – that is going to mean-revert?
#2: How do policy platforms compare and where are the parties' red lines?
#3: Which coalition option is most likely to materialize?
#4: Is a leftish red-red-green coalition a possibility at all?
#5: Are there any procedural stumbling blocks? How long might the Merkel government act as a caretaker government?
#6: What could fiscal, climate, distribution, and housing policies look like in a new three-way coalition?
#7: What is the likely impact on Germany's potential growth?
In addition to summarizing our election outlook, we include snapshots of recently published research on how key policy areas like climate, energy, EU, distribution, and fiscal policy might be shaped by the next government. [more]
Government pays a lot to bring e-mobility forward
Sectors and resources, Sustainability
Demand for electric vehicles has recently surged. Two key drivers are behind this gain in market share: Tight caps on vehicle CO2 emissions combined with the classification of electric cars as zero-emission vehicles and subsidies to buyers of electric cars. The transition to e-mobility helps to protect the climate. The contribution to climate protection will rise over time due to technological progress and scale effects in production. However, it is small and expensive for now. For every one million electric cars sold in Germany in the next few years, the total fiscal effect amounts to at least EUR 15 bn over the twelve years after the sale. Carbon abatement costs may amount to more than EUR 1,000 per ton. The current regulatory regime is obviously neither efficient from an economic vantage point nor effective in environmental protection terms. [more]
COVID causes dip in migration: Higher wage pressure likely
Net migration towards Germany was much lower in 2020 than pre-COVID. The migration flows from outside of the EU were particularly hampered whereas migration within the EU fell by 'only' 5% compared to 2019. As a consequence, the new demand for housing was much lower than in previous years which helped to reduce the housing shortage. By contrast, the lack of qualified and non-qualified workers in the labour market has become more severe through the pandemic. [more]
Heightened inflation risks in Germany: For real or just the usual paranoia?
Germany has weathered the COVID-19 crisis better than most other EMU partners. With a much smaller output gap and additional headwinds from several structural trends it is more prone to experience higher inflation, in fact, it already has. Given that the ECB will aim its policy towards the EMU average inflation, German inflation could exceed the 2% mark for several years, without triggering an ECB policy response. The ECB's new strategy with the increased 2% symmetric inflation target - implying the acceptance of inflation overshoots - and its announced preparedness to wait until it is fully convinced that its policy has worked before adjusting its policy, make such a scenario even more likely. [more]
German EU policy post-Merkel: Greener but still no big spender
Barbara Boettcher, Marion Mühlberger
All eyes are on the next government's EU fiscal stance. The Greens are advocating looser debt rules and turning the NGEU into a permanent fiscal capacity. However, in the two most plausible coalition scenarios, the Greens have to find common ground with either the Conservatives (black-green coalition) or the Liberals (traffic light coalition). Both call for re-instating the debt rules in the post-pandemic world and emphasize the one-off nature of the NGEU. Thus, we do not expect any significant shift of Germany's EU fiscal policy course. The odds of an election surprise contributing to a stronger EUR remain low. The autumn debate about the reform of the SGP will be the first proof of this new/old fiscal stance. Beyond the immediate focus of financial markets, we also sketch which impulses we expect from the next German government in the areas of EU climate, trade, foreign policies and institutional reform. With respect to putting the Green Deal to work, we expect Germany to role-model green transformation at measured pace. The German response to this week's "Fit for 55" legislative proposals is likely to be mixed. [more]
Climate policy claims encounter energy sector hurdles
Economic and european policy, Germany's super election year 2021, Sectors and resources, Sustainability
Climate change is one of the most important global challenges of the century. The issue essentially involves developing energy sources that are as efficient, cost-effective and low-carbon as possible. These should enable climate-friendly growth while also being politically acceptable. The transformation will entail significant limitations in terms of freedom of choice, and politics therefore needs to address social tensions. [more]
The return of big government spending: Will this time be really different?
Since the start of the COVID-19 pandemic the US has launched fiscal packages worth USD 5.3 trillion (25.5% of GDP). With new fiscal plans in the pipeline the total stimulus could even exceed USD 9 trillion (or 40% of 2020 GDP). Although the success of this bold US experiment is far from certain, it has started a new trend in fiscal policies. As low interest rates have depressed governments' interest bills – despite surging debt – many observers advocate to make greater use of deficit spending for funding a public investment campaign over the next decade. Given weak growth prospects, restoring debt sustainability seems a Herculean task for high debt countries. But even some "fiscally prudent" countries like Germany face severe fiscal challenges due to rapid population ageing. [more]