Germany: Risk of looser fiscal policy in 2017 - BNPP

In Germany, the only ‘big four’ Eurozone economy with fiscal space, analysts at BNP Paribas currently expect a somewhat expansionary fiscal stance, but only after September’s federal election, owing to the German public’s tendency to prefer balanced budgets.

Key Quotes

“As the government is a grand coalition, it is not entirely clear who would reap the potential political rewards of increased spending, so the coalition parties are likely to err on the side of caution.”

“That said, there seems to have been a moderate shift in public opinion towards some more infrastructure-related spending. Moreover, there is evidence of widespread voter discontent and rising support for the right-wing populist Alternative für Deutschland party, which some recent opinion polls suggest might enter the Bundestag with more than 10% of the vote. Mainstream politicians might decide that the end justifies the means and loosen fiscal policy by more than we expect, including frontloading some tax adjustments and probably increasing fiscal spending.”