New calculations from the Ifo Institute reveal that excluding private households and parts of the business sector from planned reductions in electricity tax could have a limited, yet noticeable, impact on Germany’s economic trajectory.
The Institute’s analysis, released on Wednesday, suggests that failure to implement the electricity tax reduction for private households would result in a foregone relief package valued at approximately 5 billion euros. This omission, according to Ifo’s assessment, is projected to reduce Germany’s GDP growth rate by a combined 0.1 percentage points over this year and next.
Beyond the direct financial impact, the Institute highlights the potential for more complex repercussions stemming from dashed expectations. Recent months have witnessed a positive shift in the sentiments of both consumers and businesses, accompanied by a decline in uncertainty. This improvement has been partly attributed to the anticipation of implementing measures outlined in the coalition agreement, with the expectation that these would provide a boost to the economy.
“Should these expectations be disappointed and uncertainty resurfaces, both households and businesses are likely to postpone their consumption and investment spending” explained Timo Wollmershäuser, Head of Forecasting at the Ifo Institute. This postponement, he further notes, could serve to further dampen the ongoing recovery of the German economy.