Germany weighs $61 billion spending boost on virus costs

Bloomberg

Chancellor Angela Merkel’s government is weighing as much as 50 billion euros ($61 billion) in additional debt spending to fight fallout from coronavirus crisis.
Germany’s coronavirus cabinet discussed the financing for Covid-19 tests and other measures to support Europe’s largest economy. The funding — equivalent to about 1.5% of German gross domestic product — reflects an initial estimate, and it’s still unclear if the money will be needed in the end.
The government will likely spend aggressively next year as well. Finance Minister Olaf Scholz plans to propose a draft 2022 budget, which will call for suspending the constitutional debt brake for a third straight year, the people said.
“It’s important that the financial means for testing and vaccines will be available,” Dennis Kolberg, a spokesman for the finance ministry said at a regular government press conference. “The budget is currently being put together,” he said.
Germany’s 2021 budget currently foresees 180 billion euros in debt spending. Any plans to increase borrowing will depend on what the government decides on testing and the strategy for exiting its lockdown. The slower the exit, the higher the costs become for the government.
Merkel’s administration will present its 2022 budget proposal and its medium-term financing plan on March 24. The final decision on public spending beyond this year will be left to the new parliament after September elections.
Scholz, who is running for chancellor for the Social Democrats, has repeatedly pledged that the government will spend freely to limit the economic damage from the pandemic. He’s said years of budget discipline have put Germany in a strong position to cope with the fallout.
As aggressive new variants spread, country’s contagion rate has inched up for three straight days even before the first easing steps in months go into effect. Alongside a sluggish vaccine rollout, the setback suggests Germany’s efforts to exit pandemic restrictions will be gradual.
Under pressure from a pandemic-weary public, Merkel told the leadership of her Christian Democratic party that the next steps to ease restrictions will have to be done carefully and with more testing.
Meanwhile, German businesses are increasingly optimistic that economic momentum will pick up this year, despite extended lockdowns to combat new variants of the virus and a slow start to vaccinations.
The Ifo Institute’s gauge of expectations for the next six months roie to 94.2 in February from 91.5 in January, beating estimates in a Bloomberg survey. The business climate index also gained, and companies were even slightly more upbeat about their present situation.
The German economy narrowly averted a contraction in the fourth quarter but with shops and restaurants still closed it’s set to shrink at the start of 2021. Chancellor Angela Merkel’s government has warned that the spread of the coronavirus needs to slow further before Germany can consider loosening restrictions.
The manufacturing sector is the key source of resilience. Bundesbank President Jens Weidmann told newspaper Augsburger Allgemeine in an interview earlier this month that robust industry was one reason why the first-quarter setback shouldn’t be too big.

”It’s really a divided economy,” Ifo President Clemens Fuest said in an interview with Bloomberg Television, with manufacturing strong and retail a source of weakness. The slow vaccine rollout “will hold back the economy” and “more needs to be done.”
Even so, signs are mounting that manufacturers are now being hamstrung by supply bottlenecks, including a shortage of shipping containers for sea freight and semiconductors.
Delivery delays rise to near record levels in February, pushing input costs to the highest in nearly a decade, according to purchasing managers survey data.
Automaker Daimler AG said that it’ll recover production lost due to chips being in short supply over the course of the year, but cautioned that the situation remains volatile.