The German government has responded to the world economic crisis with the so-called "Economic Stimulus Package II", making almost 50 billion euros available. The funds will be used to a large extent for infrastructure investments. Ulrich Klüh and Wolfgang Wiegard, University of Regensburg, believe that the Federal Government is on the right track with this package. On the whole, the measures are justifiable both in terms of the volume and its central components. Klüh and Wiegard welcome the added funds for infrastructure investments. They criticise that a considerable portion of the measures will not have an impact on demand before 2010. The increase in the budget deficit that the stimulus package will cause must, however, be stopped as soon as the current downturn phase is over, and the increase in the national debt must be reduced in the subsequent years. Also Karl-Hans Hartwig, University of Münster, welcomes the inclusion of transport infrastructure investments in the economic stimulus package, since these measures will lead to additional investments and a short-term increase in GDP, provided that with their financing no displacement of private investments occurs and provided that the construction industry can satisfy the increased demand rapidly. In order to use the money efficiently, funds earmarked for federal highways should be used primarily for maintenance and expansion. Thomas Bauer, Bavarian Construction Industry Association, sees in the economic stimulus package the chance to stabilise production and employment in the German construction industry in this and in the coming year and to compensate to a large extent the expected slowdown in commercial and residential construction. Investment in the infrastructure combines both cyclical and growth effects. Busso Grabow, German Institute for Urban Studies, Berlin, points out that the second stimulus package, in contrast to the first, has a stronger municipal component so that considerably more money will go "where it will be perceptible for people and business through improvements in the everyday and local environments". The desired effects of the economic stimulus package in the investment area will only be effective if the municipalities themselves provide flanking measures. It should thus be possible for municipalities with budget constraints to finance investments almost or completely without funds of their own, relying on help from the federal or state governments.
Annette Weichselberger
According to the results of the recent Ifo Investment Survey, the firms in western German manufacturing increased their investments in 2008 by nearly 9%. Especially the large firms increased their investments last year, whereas the small and medium-sized enterprises reduced or only slightly increased their spending on new plant and equipment. In light of the current extremely difficult economic situation, the investment propensity of manufacturing firms has weakened on a wide scale. According to the survey responses, firms plan to reduce their investments by a nominal 4 percent in 2009; the real decline should amount to 3 percent due to falling prices for investments in plant and equipment. This quite moderate decline is due primarily to the partially lively investment activity of some large firms. In contrast, companies with fewer than 500 employees plan to cut their investments more strongly - the smaller the firm the bigger the cuts. A further indication of a weakened investment propensity is the development of incoming orders of mechanical engineering firms, which provide a good indicator for investment propensity. Since the beginning of last year, orders in this sector have declined. Since the economic situation has only worsened since the survey was conducted, it cannot be ruled out that western German manufacturing firms will reduce their investment plans even further. As expected in times of slowing investment activity, the replacement motive has gained in relative importance. On average, this motive was in first place in 2009 at 32%, followed by intentions to expand capacity.
Erich Gluch and Ludwig Dorffmeister
Last year European construction volume registered a decline of ca. 2½ percent. For 2009 the 19 Euroconstruct institutes, of which Ifo is part, expect an even more dramatic decline of ca. 4½ percent. The experts foresee stagnation in 2010 and a revival of demand not until 2011. Particularly responsible for the weak demand in European construction is the crisis in home construction. This construction sector, after the already weak year 2008 (minus 7 percent), will continue to lose momentum this year with a further decline of 7 percent. In Spain and Ireland the fall will be particularly dramatic. In these two countries home construction volume alone will halve in 2008 and 2009. The number of housing unit completions will fall in Spain from 800,000 in 2007 to only 300,000 this year. In Ireland, only 25,000 units will be completed this year, after almost 80,000 two years ago. European civil engineering remains the bright spot, which has been growing by 2 percent a year, on average, since 1997. The Euroconstruct experts anticipate that the volume of civil engineering in the 19 investigated countries will increase by ca. 3 1/2 percent for both 2010 and 2011.
Christoph Zeiner
Our series of short country overviews, presenting key globalisation indicators for important industrial and emerging economies focuses now on Russia, from 2001 to the present.
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