Yahoo Finance Covid blows €80bn hole in Germany's finances with biggest deficit since 1995
Germany’s borrowing ballooned in the first half of the year as its economic recovery remained stuck in the slow lane thanks to supply chain shortages, official figures showed on Tuesday.
Europe’s chief fiscal hawk, which was forced to suspend its balanced budget rule on the eve of the pandemic, posted a deficit of €80.9bn (£69.2bn) for the first six months of the year - the second biggest for a six-month period since reunification in 1991.
Borrowing has surged as a result of the €130bn stimulus package introduced last year to fight the pandemic, which “continue to place a heavy burden on government finance”, the country’s statistical office said. The deficit of 4.7pc is the biggest for 26 years.
Despite the efforts to cushion the impact of the virus, Germany’s recovery has been hampered by supply chain disruptions affecting its export-heavy economy as well as its major car makers.
While overall growth between April and June was upgraded marginally from 1.5pc to 1.6pc following a 2pc slump in the first quarter, Europe’s biggest economy still trailed the 2pc growth registered across the eurozone overall, as well as the bounceback enjoyed by Italy and Spain over the same quarter.
Lifting coronavirus restrictions boosted household spending by 3.2pc as shops, bars and restaurants reopened, but export and investment growth posted far more tepid rises of just 0.5pc.
The economy also faces further headwinds as German automotive giants such as Volkswagen are in the frontline of a shortage of crucial components such as semiconductors, forcing them to scale back production.
More recent survey data from the Ifo economic institute showed almost two-thirds of industrial firms bearing the brunt of supply chain shortages in July.
Experts have warned that the shortages could be an even bigger threat to the recovery than the virus.
Carsten Brzeski at ING said: “While in recent days financial markets showed growing concerns about the delta variant and its potential to dent the global recovery, we actually see supply chain frictions and not the coronavirus as the biggest risk for the German economy in the second half of the year.”
He added: “We still expect the German economy to return to pre-crisis levels before the end of the year. However, to really get there, the current supply chain frictions must not last for too long.”
Germany’s central bank, the Bundesbank, warned on Monday that the economy could miss its growth target of 3.7pc for this year if the delta variant took hold again.
It said “economic growth could, as things now stand, be slightly lower on average for the year than foreseen in June”.
Armin Laschet, the CDU/CSU candidate to replace Angela Merkel as Chancellor following elections next month, has ruled out another lockdown.
But Stefan Schilbe, HSBC's chief economist for Germany, said: "The number of COVID-19 cases has started to rise quickly due to the spreading of the Delta variant and could to some extent make households a bit more cautious."
Mr Laschet faces a fight to succeed Ms Merkel after the Social Democrats overtook Chancellor the conservative bloc for the first time in 15 years, setting the stage for a potential power shift in Europe’s biggest economy.
Economists surveyed this month predicted growth of 3.2pc this year.
