Germany has a chance to avoid recession. Good news for Poland – or is it?

It seems that the German government has been at war with itself for some time now. The question whether to concentrate on budget discipline or spend cash to stimulate the economy is a hot one in Germany. Every trade partner watches the conflict on the edge of their seat. For Poland - Germany’s eight biggest trading partner (whereas for Poland Germany is the single biggest trading partner) what happens in the German economy is of absolute importance. Decisions of the German Ministers in many cases have more influence over Polish economy than decisions of their Polish counterparts – whether the Polish government likes it or not, that is how global economy works.

Recent changes in the SPD as well as the triumphant march to power of the green parties suggest that the rigorous stance towards the budget (“Schwarze Null”) which has been the hallmark of German economy for some time now, may be a thing of the past. Which means that Germany is seriously considering stimulating its economy in order to ward off recession.

Although such a move does have its cons as well as pros, it might be a good idea for Germany and might actually work. Since the last global crisis Germany has had a relatively slow internal consumption. Germans are very matter-of-fact people. When they were told to save money during a crisis, they did exactly that. So the economic boom afterwards was mainly due to sharp increase in exports. Which is now a problem for Germany, as they nervously search for a way to combat an export slump, which is already hurting their economy.

What if Germany decides to stimulate its economy by increasing internal consumption? And what if the stimulus is targeted – so that only those areas are supported, which contribute to German growth? If reasonably applied this tool actually worked in the past. Spending a lot of money on foreign imports would be a silly way to go about fixing the economy so Germans will probably help only those sectors of the market where German jobs and German services are located, so as to put German public cash back into German hands (and use it to pay taxes afterwards etc.).

Now the trick here is, that Germany does not manufacture many of its components in Germany. Here comes Poland into play. If Germany produces more, Poland produces more to supply Germany with parts and services. If Germany slumps, Poland slumps.

Poland already knows (or should know in any case) that a decrease in German exports is coming. This is unavoidable. Therefore Polish exporters will suffer. However, if Germany switches part of its extreme manufacturing power from exports (which will slide anyway) to internal consumption, they will still need parts and services and Polish exporters may use this opportunity to avoid having their profits slashed.

There! Crisis averted! The Polish economy will sail gloriously onc

e more on the international trading seas.

However, there is an iceberg on the horizon for this particular ship. A big one, possibly with enough stopping power to even sink the Polish economy. Do you have a clue what this is? If you haven’t guessed that already I will tell you in my next blog entry this Friday.

For more interesting facts from this blog entry, read the following fascinating articles: https://www.economist.com/europe/2019/12/05/germanys-social-democrats-pick-new-leaders and https://www.economist.com/europe/2019/11/14/why-germany-sticks-to-strict-budget-rules-despite-a-slowdown