Thread by @Brad_Setser

In the last week we have learned that Germany's 2018 fiscal surplus was even bigger than initially reported (1.9 pp of GDP v 1.7 pp of GDP) and -- shock of all shocks -- the 2019 also surplus looks likely to exceed expectations.

1/x

bloomberg.com/news/articles/…

Revenues have (again) exceeded expectations, spending is below target & interest costs are down -- so the surplus will (once again) be larger than initially forecast.

q2's surplus was ~ 2% of GDP, so there doesn't seem to have been much change from 18

reuters.com/article/us-ger…

As @Shahinvallee and others have noted, Germany has a credibility problem -- it keeps forecasting falls in its surplus that don't materialize (in part b/c revenue is consistently underestimated)

3/x

reuters.com/article/uk-eur…

@Shahinvallee the proximate cause of Germany's slowdown in 2019 is a slowdown in trade (less trade with the US than trade with the rest of the world) and thus German exports. But Germany's vulnerability to such a slowdown is effectively a function of Germany's own policy choices

4/x

@Shahinvallee Running sizable fiscal surpluses and paying down debt when interest rates are negative across the curve (you are paid to borrow, literally) is a choice.

Germany could easily have offset weakness abroad with stimulus at home. It choose not too.

5/x

@Shahinvallee If, as is quite likely, output declines in q3 Germany will have gone through an unnecessary technical recession (2qs of negative output) because it failed to really even try to offset the trade slump even with ample warning and plenty of fiscal space.

6/6