October 21, 2019 / 9:40 AM / 23 days ago

EU revises up German 2018 budget surplus, next year's easing seen small

BRUSSELS (Reuters) - The European Union’s statistics agency revised up Germany’s budget surplus for 2018, data released on Monday showed, following a trend that could signal Berlin’s plan to spend more next year may end up delivering less than expected.

FILE PHOTO: The financial district with Germany's Deutsche Bank and Commerzbank is pictured in Frankfurt, Germany, March 18, 2019. REUTERS/Ralph Orlowski

The data may not bode well for euro zone’s economic growth prospects, as the bloc is facing risks of a protracted slowdown, which many economists say could be countered only with a significant increase in governments’ spending - especially by Germany, the euro area’s largest economy.

Eurostat said Germany’s revenues last year exceeded expenses by more than previously estimated, allowing Berlin to post a budget surplus of 1.9% of its output, above the 1.7% that Eurostat had calculated in April.

The euro zone overall recorded a 0.5% deficit, unchanged from Eurostat’s previous estimate as Germany was offset by higher-than-expected spending in other countries, such as Italy, which posted a 2.2% deficit, above the 2.1% estimated earlier.

The 19-country currency bloc’s debt was revised up to 85.9% of gross domestic product from the 85.1% previously estimated.

The upward revision of Germany’s budget surplus confirms the trend in surprise overshoots in data from Berlin. In 2017, the country’s surplus was raised to 1.2% of GDP from the 1.0% initially estimated.

In 2016, the final surplus was recorded at 1.2% of output from 0.9% previously estimated.

If this trend continues next year, Germany’s planned loosening of the purse strings may also result in being smaller than forecast, in a blow to those who are calling for more spending to tackle the economic slowdown of the euro zone.

Under draft budgetary plans prepared by EU governments this month, the overall easing for the euro zone would be 0.3% or 0.4% of GDP in 2020, with a positive effect on growth up to 0.2 percentage points, Greg Fuzesi, an economist at J.P. Morgan, estimated.

Half of the planned easing would come from Germany, Fuzesi said, arguing that it may be however lower than currently expected.

Despite frequent calls from the European Central Bank and many governments to step up spending, “the amount of fiscal easing in the draft national budgets for 2020 is quite limited”, Fuzesi said.

“Germany has pledged to reduce its structural surplus from 1.25% of GDP this year to 0.5% next,” Andrew Kenningham of Capital Economics said. “But it promised to reduce its surplus by a similar amount last year and did not do so,” he added.

He concluded that there will be “no fiscal boost in 2020” in the euro zone.

Reporting by Francesco Guarascio @fraguarascio; Editing by Philip Blenkinsop and Alison Williams

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