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| As Growth in Germany Fades, Merkel Hints at a Shift in Economic Policy | As Growth in Germany Fades, Merkel Hints at a Shift in Economic Policy |
| (about 1 hour later) | |
| FRANKFURT — As evidence accumulates that the German economy is beginning to stall, Chancellor Angela Merkel on Thursday expressed growing willingness to increase government spending on public projects, a shift in position that could benefit the entire eurozone. | FRANKFURT — As evidence accumulates that the German economy is beginning to stall, Chancellor Angela Merkel on Thursday expressed growing willingness to increase government spending on public projects, a shift in position that could benefit the entire eurozone. |
| Ms. Merkel has faced criticism from fellow European leaders as well as from many economists for her insistence on balancing the federal budget rather than stimulating the increasingly lethargic German economy. But discouraging data in recent days, as well as a warning on Thursday by the nation’s leading economic institutes, seem to have softened her position. | Ms. Merkel has faced criticism from fellow European leaders as well as from many economists for her insistence on balancing the federal budget rather than stimulating the increasingly lethargic German economy. But discouraging data in recent days, as well as a warning on Thursday by the nation’s leading economic institutes, seem to have softened her position. |
| Faced with what she acknowledged were “somewhat worsened” forecasts for the German economy, Ms. Merkel said on Thursday at a news conference in Berlin that her government was examining how to encourage investment, particularly in the “digital sphere” and the energy sector. | Faced with what she acknowledged were “somewhat worsened” forecasts for the German economy, Ms. Merkel said on Thursday at a news conference in Berlin that her government was examining how to encourage investment, particularly in the “digital sphere” and the energy sector. |
| The national statistics office said on Thursday that German exports slumped 5.8 percent in August compared with July, more than expected. It was the sharpest drop since 2009, in the aftermath of the global financial crisis. And it was the latest in a series of indications that Germany’s export-driven economy was losing momentum, in part because the conflict in Ukraine has made businesses cautious and unwilling to invest. | |
| As the biggest economy in the 18-member eurozone and the one that in recent years was growing enough to at least partly offset economic softness elsewhere in the region, Germany drives economic demand in the eurozone. Other countries in the region have watched with growing alarm as indicators have suggested that the standard-bearer might be stumbling, while international economists have repeatedly called for Germany to stop worrying about balancing its budget and instead invest in economic stimulus. | As the biggest economy in the 18-member eurozone and the one that in recent years was growing enough to at least partly offset economic softness elsewhere in the region, Germany drives economic demand in the eurozone. Other countries in the region have watched with growing alarm as indicators have suggested that the standard-bearer might be stumbling, while international economists have repeatedly called for Germany to stop worrying about balancing its budget and instead invest in economic stimulus. |
| Ms. Merkel said her government, a grand coalition of the political center-right and center-left, had discussed the economy at a meeting on Tuesday evening. | Ms. Merkel said her government, a grand coalition of the political center-right and center-left, had discussed the economy at a meeting on Tuesday evening. |
| “This course we will now pursue very decisively, and also discuss within Europe,” she added, apparently referring to a summit meeting of European Union leaders this month in Brussels. | “This course we will now pursue very decisively, and also discuss within Europe,” she added, apparently referring to a summit meeting of European Union leaders this month in Brussels. |
| Her remarks came after Germany’s most respected economic institutes on Thursday revised their projections for growth sharply downward. Gross domestic product this year is expected to expand 1.3 percent, compared with a forecast of 1.9 percent six months ago, the institutes said in a joint statement. Next year, growth is forecast at 1.2 percent instead of a previous 2 percent, they added. | |
| Along the way, they predicted, the German economy will show zero growth for the current quarter and will barely eke out growth of 0.1 percent in the fourth quarter. | Along the way, they predicted, the German economy will show zero growth for the current quarter and will barely eke out growth of 0.1 percent in the fourth quarter. |
| Separately, some economists are predicting a quarter or two of contraction before German growth resumes. | Separately, some economists are predicting a quarter or two of contraction before German growth resumes. |
| “Germany’s economy has cooled down markedly,” the economic institutes said in a statement. “With economic output falling in the second quarter and stagnating in the third quarter of 2014, the engine for economic growth is proving hard to rev up again. Both domestic and foreign demand is weak: The consumer climate deteriorated recently, and companies remain cautious about investment.” | “Germany’s economy has cooled down markedly,” the economic institutes said in a statement. “With economic output falling in the second quarter and stagnating in the third quarter of 2014, the engine for economic growth is proving hard to rev up again. Both domestic and foreign demand is weak: The consumer climate deteriorated recently, and companies remain cautious about investment.” |
| German leaders have faced criticism for their obsession with reducing the budget deficit at a time when the country is able to borrow money at record low rates, and when roads, bridges and university campuses are deteriorating. At times, German bonds have carried negative interest rates, meaning investors are effectively willing to pay the government to keep their money safe. | German leaders have faced criticism for their obsession with reducing the budget deficit at a time when the country is able to borrow money at record low rates, and when roads, bridges and university campuses are deteriorating. At times, German bonds have carried negative interest rates, meaning investors are effectively willing to pay the government to keep their money safe. |
| Ms. Merkel and her finance minister, Wolfgang Schäuble, have a habit of hinting at policy shifts almost in asides before announcing action. The chancellor’s remarks on Thursday came in response to a question about economic prospects, at a news conference with the new prime minister of Poland, Ewa Kopacz. | |
| The government “has taken note” of the latest prognoses, Ms. Merkel said. “It did not surprise us” because there had been several indications that economic indicators had “somewhat worsened,” she added. | The government “has taken note” of the latest prognoses, Ms. Merkel said. “It did not surprise us” because there had been several indications that economic indicators had “somewhat worsened,” she added. |
| As a result, the government “is preparing to face this and is right now considering how to encourage additional investment, reduce bureaucracy, and invest in the future, for instance in the digital sphere or the energy area, in order to bring the energy program along,” Ms. Merkel said. | As a result, the government “is preparing to face this and is right now considering how to encourage additional investment, reduce bureaucracy, and invest in the future, for instance in the digital sphere or the energy area, in order to bring the energy program along,” Ms. Merkel said. |
| She gave no further details, beyond noting that it had been discussed at the government meeting. | She gave no further details, beyond noting that it had been discussed at the government meeting. |
| In an indication of the significance of that gathering, Mr. Schäuble arrived late to an awards ceremony with two former United States secretaries of state, Henry A. Kissinger and James A. Baker, on Tuesday night. He excused himself by saying that he had been in a meeting of the governing coalition and would have to return after giving a speech praising Mr. Baker’s invaluable contribution to fostering the reunification of Germany. | In an indication of the significance of that gathering, Mr. Schäuble arrived late to an awards ceremony with two former United States secretaries of state, Henry A. Kissinger and James A. Baker, on Tuesday night. He excused himself by saying that he had been in a meeting of the governing coalition and would have to return after giving a speech praising Mr. Baker’s invaluable contribution to fostering the reunification of Germany. |
| The decline in exports reported on Thursday was the sharpest since 2009, according to economists at the bank ING. | |
| “The magnitude of the fall brings back memories of the peak of the financial crisis,” Carsten Brzeski, an economist at ING, said in a note to clients. “The economy seems to need a small miracle in September to avoid a recession in the third quarter.” | “The magnitude of the fall brings back memories of the peak of the financial crisis,” Carsten Brzeski, an economist at ING, said in a note to clients. “The economy seems to need a small miracle in September to avoid a recession in the third quarter.” |