Olaf Scholz said the German economy – the biggest in the eurozone at £3.1trillion – was “continuing to move forward”, and employment is at a “truly remarkable high”.
But he also admitted Germany’s public finances could come under pressure, with slowing growth bringing an end to a run of massive budget surpluses.
He claimed many companies “are very confident about their future prospects”.
But the finance minister acknowledged slowing expansion would lead to increased pressure on the country’s budget.
In a warning to feuding ministers in Angela Merkel’s “grand coalition”, Mr Scholz told the Financial Times: “We can afford a lot, but not everything, and not at the same time.
The finance minister, who is also deputy leader of the German Social Democratic party, rejected calls from Angela Merkel’s coalition partner the Christian Democrats to cut taxes in order to stimulate the economy and see off any potential economic downturn.
Finance ministry bosses have warned the German government could face a shortfall of £21.6billion by 2023 as tax revenues are likely to be below previous estimates.
Mr Scholz warned: “What is new is that we can no longer secretly assume that by the end of the year we will have raised more taxes than we planned to.
“Wherever there are additional spending requests, we will have to make savings somewhere else.”
But despite the German Finance Minister attempted to calm nerves over any potential economic downturn, there are already fears the country has slid into recession.
The economy shrunk 0.2 percent in the third quarter, largely due to continued struggles in the lucrative car sector, with Deutsche Bank expecting the same contraction for the start of 2019.
On Thursday, Germany’s Federal Statistics Office revealed a surprise fall in industrial output for December – the fourth consecutive month of decline.
The data revealed output was down 0.4 percent on November – in huge contrast to economists polled by Reuters who predicted an increase of 0.7 percent.
In a report earlier this week, Deutsche Bank – Germany biggest lender – warned the country is hurtling towards recession, expressing dismay at how the financial landscape is looking.
Deutsche Bank economists, including Sebastian Becker, wrote: “The start of the German economy into 2019 has been a major disappointment so far.
“The development of several key cyclical indicators is telling us that the German economy is drifting towards recession right now.”
Deutsche Bank economists have not yet refined their one percent forecast growth for this year as they await fourth quarter data to be released by the German statistics office on February 22.
But further poor results would put Germany into a confirmed state of recession following the contraction in the economy during the last quarter.
Deutsche Bank added: “Given much weaker than expected January business surveys and in particular the slump in their more forward looking components we are now expecting the German economy to contract again in Q1 2019.
“Global economic policy uncertainty jumped in December marking a new all-time high.”
“Most of the global trouble spots (Brexit, Chinese growth concerns) have taken a turn for the worse in January, making it very hard to assume a fundamental improvement during the reminder of Q1.”
Published at Fri, 08 Feb 2019 14:53:00 +0000