German economy struggles as energy aid payouts leave holes in budget

DPA/The Local
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German economy struggles as energy aid payouts leave holes in budget
Chancellor Olaf Scholz meets statistics agency chief Ruth Brand on August 11th 2023. Photo: picture alliance/dpa | Arne Dedert

Billions of euros in aid provided during the energy crisis plunged the German state budget deep into the red in the first half of the year, according to preliminary data from the Federal Statistical Office.


In all the government spent €42.1 billion more than it earned in the first six months of 2023, the statistics agency said. Relative to overall economic output, the deficit for the federal government, states, municipalities, and social security stood at 2.1 percent.

The last time this figure was higher for the first half of a year was in 2021, when Germany recorded a deficit of 4.3 percent at the height of the Covid-19 pandemic.

Following a chilly economic winter, the German economy failed to gain momentum in the spring. Gross Domestic Product (GDP) stagnated in the second quarter in relation to the previous quarter, the agency said. This confirmation of preliminary data indicated that an anticipated spring recovery had not materialised. Prior to the spring the German economy had contracted for two consecutive quarters, officially entering a technical recession.

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Ruth Brand, president of the Federal Statistical Office, commented: "After the slight declines in the preceding two quarters, the German economy stabilised in the spring."


Economists' outlook for the coming months has dimmed. According to the latest monthly report from the German Federal Bank, the country's economic performance is expected to remain largely unchanged in the third quarter of 2023. Economic research institutions and bank economists are forecasting a slight contraction for Europe's largest economy for the whole of 2023, pushing Germany into a recession.

Despite the increased deficit, Germany adhered to European debt rules in the first half of 2023. The European Stability and Growth Pact allows EU member states a budget deficit of a maximum of three percent and a total debt of a maximum of 60 percent of the nominal GDP. The rules are however currently suspended due to the pressures caused by the Covid pandemic. Discussions are ongoing in Brussels about planned reforms to budget rules. 


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