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DIW is calling for an economic stimulus package

DIW is calling for an economic stimulus package

Economic researchers are proposing another billion-dollar economic stimulus program: the investments of 192 billion euros would largely be self-sustaining and boost the gross domestic product.

In view of the record recession caused by the Corona crisis, the German Institute for Economic Research (DIW) is proposing another billion-dollar economic stimulus program. It should include an investment fund for companies, relieve municipalities, and set trendsetting impulses.

Germany, according to DIW economic director Claus Michelsen, cannot “export itself out of the crisis” after the financial crisis. “Our box office hits – vehicles, machines, and systems – are no longer in demand.” The proposed second stimulus package creates more jobs than the Corona crisis has lost. Almost half of it finances itself through higher tax revenues.

According to this, around 192 billion euros are to be invested in the next ten years: in day-care centers and all-day schools, in key technologies, business start-ups, local government debt relief, and a changeover premium for people who switch from cars to bicycles, buses, and trains. The goal must be a digital, resource and climate-friendly conversion of the industrialized nation said the institute on Thursday.

“Germany has a lot to catch up on here”

The proposed volume would increase annual growth over the next ten years by an average of 0.5 percent per year, as the DIW emphasized. At the same time, employment will be increased by more than 800,000 jobs. “We should not only have an economic stimulus for the next two years, but steady growth for the next ten years,” said Claus Michelsen.

Almost half of such a program is self-financing. “We have been talking about decarbonization, digitization, infrastructure, or better education for some time,” continued Michelsen. “Germany has a lot to catch up on here.”

The stimulus package of 130 billion euros already approved by the federal government is going in the right direction but is stabilizing above all in the short term. “On the other hand, additional investments pay off in the long term and increase income in the long term,” said Michelsen. “This not only leaves future generations with a more competitive and sustainable economic structure – but we also make it easier to reduce debt with higher growth.”

Praise to the ECB

For the current year, the DIW believes a slump in the gross domestic product (GDP) of 9.4 percent is the most likely scenario. The economy could grow again from the summer quarter, but only “slowly”, said Michelsen. The number of unemployed rose on average by half a million a year.

“The fact that many companies are dependent on export business makes the German economy very vulnerable in times of crisis like this,” said DIW President Marcel Fratzscher. The losses are still far from being made up for in 2021. From today’s perspective, the German economy would then grow by 3.0 percent.

The federal government’s stimulus package noticeably supports the economy, according to the DIW. If it is implemented in this way, the economic slump should be lower this year at 8.1 percent and the recovery in 2021 should be stronger at 4.3 percent. Fratzscher also praised the intervention of the European Central Bank (ECB). She learned from previous crises and intervened early and massively. “This has stabilized the financial markets,” said Fratzscher.

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