Despite tax reform: stimulation of economy put at risk in 2001
Germany faced a slow increase in consumption last year. Particularly in the second half of 2000 consumption slowed down. This was due to weaker income impulses which were caused by weaker income impulses and an enormous rise in oil prices leading to extra costs in private households. Therefore, the private consumption only increased by 1,6 % throughout 2001.
According to the DIW Berlin's new weekly report this increase is surprisingly low. Yet, in the beginning of 2001 private consumption in the second half of 2000 was still expected to have risen by 1,8 % but actually reached only 0,9 %.
The DIW Berlin holds the view that consumption could be stimulated by an increase in net-incomes triggered off by the beneficial effects of the income tax reform. However, this requires a moderate development in prices. It is the general opinion that the price increase of the cost of living will flatten out, because of a gradual decrease of the prices of mineral oil products. The positive effects of the income tax reform will have no effects in the short term, because the higher mineral oil prices are passed on to the heating cost element of the rents. So this year there will not only be an adjustment of the current rents, but also to back-payments for the year before. This will basically ruin the positive tax reduction impulses of the first quarter of 2001.
The atmospheric picture of the private households clouded over after mid-year 2000; the expectation regarding the own financial situation worsened and the willingness to bigger consumptions decreased. But to the extent that negative influences - like high mineral oil prices - will diminish, the consumer mood will lighten up. The first indicators for 2001 are not unfavourable. The registration of new cars were 3.5% higher in January than in the previous year. It is to be hoped that this marks the end of the slack period of car sales. Retail trade also started with an increase in turnover in the new year.