German fiscal policy should turn expansionary

During the first half of 2015, the general government of German ran a surplus of 1.4% of GDP, a much better outcome than initially expected, due to both strong tax receipts and low expenditures. Under our calculations, the structural balance of the government is likely to be in surplus of 1.5% of GDP in 2015, while the debt break rule requires a structural deficit of -0.35% of GDP. 

Consequently, public debt is now declining quite rapidly and could drop below 60% of GDP by the end of the decade. Therefore, and especially in view of the lack of public infrastructures and the additional spending likely to be generated by the crisis of migrants, the government will probably ease fiscal policy in 2016, while maintaining a budget close to balance, says Barclays. 

The amended draft budget for 2016 foresees an increase of more than 5% in public expenditures, mostly due to the cost related to the welcome of migrants, and to a lesser extent an increase in public infrastructure investment, added Barclays.