LIVE MARKETS-Germany's fiscal boost is taking hold

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GERMANY'S FISCAL BOOST IS TAKING HOLD

Germany's fiscal expansion plans brought big hopes for the country's long sluggish economy. But those hoping for a quick fix were left disappointed.

Now, it seems like the fiscal boost is actually taking hold, according to Mark Haefele, chief investment officer at UBS Global Wealth Management.

"Germany’s fiscal expansion is becoming more visible in defense activity, construction, and labour demand," he said.

Haefele pointed to Germany's federal fiscal deficit widening recently as defense spending has gone up and revenues have weakened, a jump in domestic orders for e.g. weapons, and support for road construction and civil engineering from public orders.

Investment spending however slowed in the third quarter, he noted, and added that while job vacancies have eased in sectors exposed to the fiscal package, employment demand more broadly hasn’t recovered yet.

Even so, fiscal expansion should boost economic growth for the rest of this year and into next, even if there are some hiccups along the way, the note said.

"We expect disbursements to accelerate as ministries and regional governments use their remaining allocations. Higher defense orders and public construction activity should support production and employment in exposed sectors," Haefele said, although noting various issues could slow the pass-through.

And what does that mean for markets?

Well, the "improving outlook supports our constructive view on German equities, with the fiscal program providing a domestic tailwind to corporate earnings," Haefele said.

(Sophie Kiderlin)

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