Research from Standard & Poor’s Rating Services has warned that an economic stimulus package from Germany in the first quarter of 2015 would provide only a limited boosting effect to overall eurozone growth.
It noted that as the slowdown in growth since March has raised fears of a triple dip recession in the eurozone the focus is turning towards Germany, which is the only large eurozone country with a current account surplus and a balanced budget.
But findings from a series of econometric models simulating the effects of a reflationary package from Germany to determine whether a more aggressive monetary policy could boost its struggling neighbours, showed this would not necessarily be the case. Instead it noted a further drawback to a boost in economic growth and employment would be an acceleration in inflation in Germany.
S&P noted that while the results of its research should be “taken with caution” as they are they are only a partial representation of what could happen under specific assumptions, the results do “offer some interesting lessons”.
It stated: “They [the results] put Germany’s potential contribution to higher growth in the eurozone into perspective, with the conclusion being that a stimulus package in that country alone would have a modest effect on its neighbours, while even a relatively moderate package, as we assumed, would have a significant effect on its domestic inflation. This suggests that Germany’s margin of manoeuvre in terms of additional growth isn’t as big as is sometimes thought.
“Instead, we think a concerted investment plan encompassing a majority of countries within the eurozone would seem more likely to have a sustainable effect on growth and employment without creating early inflation pressures.”
