BERLIN, Dec. 1 (Xinhua) -- The German economy could slide deeper into recession due to the 60-billion-euro (65.4 billion U.S. dollars) budget gap caused by the failed reallocation of COVID-19 emergency funds for climate measures, the Federation of German Industries (BDI) said on Friday.
Two weeks after the decisive ruling by the Federal Constitutional Court, it remains unclear how the German government wants to solve the budget problem in the coming years. The three coalition parties are still discussing whether to take on new debt, increase taxes or make extensive savings.
If governmental expenditure was to be reduced by the full extent of the ruling, Germany's economy would at best stagnate, with gross domestic product (GDP) declining by up to 0.5 percent in 2024, the BDI warned.
"Supporting the economic upturn requires planning security for companies and therefore a quick decision on which of the necessary funds will be made available," BDI Managing Director Tanja Goenner said. New borrowing, which is prevented by the so-called debt brake, would support the recovery.
Europe's largest economy is already predicted to shrink by 0.4 percent this year. "The mix of high interest rates, which slowed down residential construction, declining private consumption due to high inflation and weak exports is the main reason," the BDI stressed.
Although inflation in Germany weakened further in November to 3.2 percent, it is still significantly higher than in the eurozone at 2.4 percent, according to provisional figures. German consumers continued to see above-average price increases for food in particular.
Industry, meanwhile, is suffering not only from weak export demand but also from locational disadvantages due to Germany's comparatively high energy prices. The government wanted to counteract this with electricity tax reductions, but this has been put on hold for the time being due to the budget crisis.
The government has an "urgent responsibility to eliminate the current uncertainties and quickly provide a perspective for the recovery of the German economy," Goenner said. ■