Germany hopes stimulus measures will drive second-half recovery

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Germany can avoid a second wave of the coronavirus pandemic and a new 130 billion euro ($147 billion) stimulus package should help Europe’s largest economy start recovering in the second half of the year, ministers said on Friday.

Germany’s economy has taken a battering after many firms went into lockdown in March to curb the spread of the coronavirus and the government expects a 6.3% contraction this year – which would be its worst recession since World War Two.

As part of the stimulus package, the cabinet agreed on Friday to cut value-added tax VAT to 16% from 19% from July 1 until Dec. 31 in a bid to boost consumption and to give parents a cash handout of 300 euros per child.

“We want to make sure that the economic trough is passed in the second half of the year,” Economy Minister Peter Altmaier told a news conference.

Both measures are part of a wider package the government announced last week and which the DIW institute has said could boost economic output by 1.3 percentage points this year and next.

The stimulus measures come on top of a 750 billion-euro rescue package agreed in March which encompassed a debt-financed supplementary budget of 156 billion euros.

Germany’s measures, which together with liquidity aid and loan guarantees equal more than 30% of its economic output, go substantially beyond any other national emergency programmes launched by other euro zone countries.

Germany can afford generous spending splurges as it has had a balanced budget since 2014.

Finance Minister Olaf Scholz told a joint news conference with Altmaier that Germany was well placed to avoid a second wave of the virus – a risk that unnerved financial markets on Thursday.

The chances were “very, very large that we will get past this major problem,” Scholz said.

($1 = 0.8832 euros)

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