Fiscal stimulus (change in cyclically-adjusted balances 2020), % of GDP
A 3.8% of GDP stimulus package to support demand
The German government on 3 June announced €130bn in fiscal measures that specifically aim to boost demand. This package comes on top of the existing German COVID-19 stimulus of 4.8% of GDP (mainly containing income support schemes) and implies that the overall German stimulus is now one of the largest globally. A key component of the package is a temporary 3 ppt decrease in the VAT rate that aims to support consumer spending in H2 2020. Corporates will benefit from an expanded grant scheme for the services sector and accelerated depreciation allowances amongst other measures to boost investment. Finally, there are several measures to boost public investment in digitalisation and climate change mitigation projects. While a car scrapping scheme is not part of the package, subsidies for electric vehicle purchases have been increased.
Another support for our bullish view on Germany
The larger than expected fiscal package is another support for our positive view on Germany (which ranks 3rd out of 12 countries on our Country Scorecard). Germany is one of our preferred ways of gaining exposure to an economic recovery, given the positive correlation to lead indicators. It also has the second highest exposure to Value after Italy, which may be helpful in the short term, given the current style rotation.