Morgan Stanley || Germany announced last week a fiscal package to address high energy prices. Although the measures follow the pattern of the policy response of 2022/23, they are on a smaller scale and, at least for now, are designed not to impact German debt. The package consists of two measures:
- a two-month reduction of the energy tax on fuels along with a VAT cut of around 0.17€/litre (effective, at the earliest, from 1 May); and
- the possibility for employers to make a one-off payment to their employees of up to €1,000 during 2026. This payment is exempt from income tax and social contributions (equivalent to a gross payment equal to net).
As a result of both measures, Jens Eisenschmidt (Macro Europe) expects:
- a boost to growth of 5-20 b.p. in 2026, mainly through consumption; and
- a temporary reduction in inflation of about 25 b.p..
In summary, Jens sees a slightly positive impact on growth from these measures, which could raise his GDP forecast for 2026 (currently 0.5%) by up to 5-20 b.p. This impact would be greater if economic growth remains strong, as it would increase the likelihood of companies using the scheme for actual additional payments.
