June 25, 2024

(Bloomberg) — Germany’s federal government will have room to increase net borrowing by around €5 billion ($5.3 billion) next year due to a mechanism that permits additional new debt during an economic downturn.

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Finance Minister Christian Lindner had penciled in net borrowing of €16.6 billion for 2024, bringing the federal government’s finances back in line with a constitutional limit known as the “debt brake” after it was suspended during the pandemic and the energy crisis.

The Economy Ministry will publish a revision to its forecast for 2023 gross domestic product on Wednesday to a contraction of 0.4%, from a previous prediction of 0.4% expansion, providing leeway under the budget rules to expand new borrowing to about €22 billion, according to people familiar with the planning, who asked not to be identified.

A spokeswoman for the economy ministry declined to comment. A finance ministry spokeswoman said that an adjustment of the government’s economic forecasts would typically lead to a change in the amount of permitted new debt. However, this would not necessarily create room for additional spending, she added.

Lindner, who chairs the fiscally hawkish FDP party, insisted on restoring the debt brake after the government ramped up borrowing and spent hundreds of billions of euros to cushion the impact of the pandemic and rising energy costs on households and companies.

Read More: Germany Slashes Debt Sales by €31 Billion in Fourth Quarter

His budget for next year squeezes spending across all government departments except for defense and cuts net new debt from around €45 billion this year.

Although new borrowing peaked at more than €200 billion in 2021 before falling to about €115 billion in 2022, Germany still has one of the lowest debt to GDP ratios among rich nations at around 66%.

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