As Germany's economy faces a possible recession due to a myriad of factors, its government is now exploring different measures to prevent that from happening. One of the measures it is reportedly considering is the injection of up to $55 billion into the economy to bolster activity and to boost output.
Germany's finance minister, Olaf Scholz, mentioned over the weekend that the government is prepared to spend up to $55 billion to combat a possible recession. The official stated that the government needs to come up with that amount, which is the estimated cost of its current economic turndown.
According to reports citing people familiar with the matter, the fiscal stimulus is aimed at mainly bolstering the domestic economy and to improve overall consumer spending. If those are achieved, it could prevent large-scale unemployment to stave off a possible economic recession in the world's fourth-largest economy.
The proposed stimulus is a likely response by the government given the country's economic contraction. Germany's economy slowed down by 0.1 percent in the second quarter, its slowest pace in over six years.
Economists have stated that the two consecutive quarters of reduced output may eventually lead the country to an economic recession. The country's central bank had also expressed the same sentiments in its latest monthly report, which was released on Monday this week.
The recent slowdown has been attributed to a number of major factors, which have all contributed to overall lowered output. These factors include lowered consumer spending, decreased business confidence, and lowered overseas demand. In turn, these factors can be blamed on the recent geopolitical situation, particularly due to the ongoing trade dispute between China and the United States and the rising fears of a no-deal Brexit.
The geopolitical turmoil has caused significant drops in the country's overall exports, particularly in its automotive sectors. The country's automotive industry, which accounts for around 5 percent of its gross domestic product (GDP) has suffered the most, with a reported 12 percent drop in the first six months of 2019. Germany's auto industry also provides jobs for roughly 820,000 people in the country.
Demand for its other exports, such as German equipment and industrial products have also dropped. This is mainly due to cutbacks on purchases from major buyers as their respective economies deal with the uncertainties brought about by the trade disputes.
Analysts predict that economic activity could decline further in the coming quarters if the country's central bank and its government do not intervene.
