June 11, 2020 / 9:02 AM / a month ago

German govt's stimulus could boost economy by 1.3 pct points this year- DIW

BERLIN, June 11 (Reuters) - The German government’s planned 130 billion euro ($147.33 billion) stimulus programme could boost economic output in Europe’s largest economy by 1.3 percentage points both this year and next, the DIW institute said on Thursday.

DIW forecast the economy would contract by 9.4% this year as the coronavirus pandemic takes its toll before expanding by 3% next year - all under the assumption that the pandemic is sustainably contained.

But it said the government’s latest economic stimulus package was noticeably supporting the economy and added that if the programme were implemented as announced, economic output would fall less sharply - by 8.1% this year - and rise by 4.3% next year.

On Monday German a government spokesman said Chancellor Angela Merkel’s ruling coalition hopes to pass large parts of the package at a special cabinet meeting on Friday.

Sources in the coalition and federal states have told Reuters that the German upper and lower houses of parliament are aiming to hold special sessions on June 29 to pass the package.

The programme includes lower value-added tax (VAT) to boost consumption, a one-off 300-euro stipend per child to help families as well as a doubling of incentives to promote the sale of electric cars. It follows a 750 billion euro rescue package agreed in March.

DIW said gross domestic product would fall much further in the second quarter than during the first, when it dropped by 2.2% - the steepest rate since 2009.

But the institute said the economy would pick up again, albeit very slowly, from the third quarter as restrictions to contain the spread of the coronavirus are eased.

$1 = 0.8824 euros Reporting by Michelle Martin Editing by Paul Carrel

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