Merkel Rejects New Stimulus Program as Economic Data Worsens
By Brian Parkin and Tony Czuczka
April 22 (Bloomberg) -- Chancellor Angela Merkel stood firm in rejecting any new German economic stimulus program even as the International Monetary Fund said the recession is worse than previously thought and called for measures to spur demand.
Merkel shrugged off calls for more spending despite a report by Germany’s leading economic institutes which will show tomorrow that Europe’s biggest economy may shrink as much as 6 percent this year -- almost three times the contraction of 2.25 percent forecast by the government in January.
The coalition won’t expand its 82 billion euro ($107 billion) stimulus agreed under two separate programs, Merkel told reporters in Berlin today after a meeting with business leaders and economists.
“We shouldn’t talk about a third stimulus package,” Merkel said. “Instead we’ll let current measures take effect.”
The chancellor’s comments echo statements today by her finance and economy ministers underlining unity in the coalition over not stretching the budget more to pay for new stimulus steps. Still, the government may be forced to ease its purse strings as the recession becomes steeper, pushing up unemployment and company closures, as Sept. 27 national election approach.
“Companies going belly up, unemployment worsening -- these are set to become more and more manifest,” Hans-Juergen Hoffmann, managing director of polling institute Psephos GmbH, said in an interview today.
Further steps to prime economic growth now would be “counter-productive,” Steinbrueck told reporters in Berlin. “It would lull people into doing nothing as they wait for the next round of financial aid.”
A leaked report from Germany’s leading economic institutes -- confirmed by a government official -- forecast the economy may shrink 6 percent this year, a steeper decline than that expected in the U.K. The IMF predicted the German economy will shrink by 5.6 percent compared with 4.1 percent in the U.K., 2.8 percent in the U.S. and 3 percent in France.
Steinbrueck said the forecasts tally with his own. Germany’s economy contracted by 3.3 percent in the first quarter following 2.1 percent in the last three months of 2008, he said, adding that a “five in front of the decimal point doesn’t seem unlikely” for the country’s 2009 performance.
The IMF said the global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize.
The Washington-based IMF said in a forecast released today that the world economy will shrink 1.3 percent this year, compared with its January projection of 0.5 percent growth. The lender predicted expansion of 1.9 percent next year instead of its earlier 3 percent projection.
The fund’s latest outlook highlights the precarious state in which the world economy remains, even amid signs the worst slump since World War II may be easing. Recovery isn’t assured and will depend on policy efforts to cleanse banks’ balance sheets and craft measures that spur demand, the IMF said.
To contact the reporter on this story: Brian Parkin in Berlin at email@example.com; Tony Czuczka in Berlin at firstname.lastname@example.org.