Germany to maintain balanced budget until at least 2020, but growth forecast down for 2016

The German federal government said on Wednesday it would maintain a balanced budget until 2020 despite increasing spending on refugee costs.

The government plans to spend 325.5 billion euros (363.7 billion U.S. dollars) in 2017, 2.7 percent more than the target of 316.9 billion euros this year, according to the German Finance Ministry.

Among them, 33.7 billion euros will be spent on public investment next year. An additional 10 billion euros will be set aside to cover costs of accommodating and integrating asylum-seekers. Both are higher than current levels.

Germany also plans to increase spending on other areas including defense, education and social welfare.

All these expenditure increases will be supported by revenue hikes, according to the finance ministry.

"We keep our word and remain faithful to our solid financial policy in a difficult environment," said German Finance Minister Wolfgang Schaeuble.

"We invest in infrastructure, education and research, we will do what is necessary in order to ensure internal and external security, and we will help the refugees. All without new debt."

Against this backdrop, a panel of the German government's economic advisers slightly cut their growth forecast for 2016 on Wednesday, but said they remained confident of the German economic outlook and the government's solid finance.

The German Council of Economic Experts, known as the "Five Wise Men," said in their biannual report that the German economy would grow by 1.5 percent this year, 0.1 percentage points less than their previous forecast.

The downward adjustment was due to "somewhat weaker external demand," the panel said.

However, supported by rising consumer spending, the German economy continues its expansion, they said.

They expect the economy to grow by 1.6 percent in 2017 stimulated by a strong labor market, expansionary fiscal policy and "extremely loose monetary policy" of the European Central Bank.

The experts saw refugee migration as a major challenge for Germany's economic policy, estimating that about 360,000 refugees would enter the labor market by the end of 2017 and "a large part of them will initially be unemployed," the panel said.

The advisers also said the German government could finance additional public expenditure in 2016 and 2017 without adding new debt or increasing taxes.

Europe's biggest economy grew by 1.7 percent in 2015, driven mainly by private consumption and government spending. Endit