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German tax revenues stabilize in July, industry seen recovering further

BERLIN (Reuters) - German tax receipts stabilized in July with the expected plunge in fiscal revenues caused by lockdown measures to contain the COVID-19 pandemic proving less steep than originally feared, the finance ministry said on Thursday.

FILE PHOTO: A view of the empty center of Rheda-Wiedenbrueck is pictured, as the outbreak of the coronavirus disease (COVID-19) continues, Germany, June 23, 2020. REUTERS/Leon Kuegeler/File Photo

Tax receipts of the federal government and the 16 regional state governments edged down by 0.3% year-on-year after tumbling in the previous months, the ministry said in its monthly report.

The German economy, Europe’s largest, contracted at its steepest rate on record in the second quarter as consumer spending, company investment and trade collapsed during the peak of the coronavirus pandemic.

From January to July, tax revenues fell 8%, less than an estimated drop of nearly 10% for the whole year, the finance ministry said.

The ministry pointed to recent increases in industrial output and exports, adding that business and consumer sentiment surveys also pointed to a further improvement.

“For the coming months, industrial production is expected to recover further,” the ministry said.

The government said in April it expected the economy to shrink by 6.3% this year and rebound in 2021 with an expansion of 5.2%. This means that the economy is unlikely to reach its pre-crisis level before 2022.

The government is expected to update its growth forecasts and tax revenue estimates in September.

Chancellor Angela Merkel and Finance Minister Olaf Scholz hope that a massive stimulus package, worth more than 130 billion euro ($155 billion) including a temporary VAT cut to boost domestic demand, will help the economy return to growth.

Parliament has suspended the constitutionally enshrined debt brake, allowing the federal government to increase annual new borrowing by a record 217.8 billion euros this year.

Reporting by Michael Nienaber; Editing by Madeline Chambers

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