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Photographer: Jasper Juinen/Bloomberg Photographer: Jasper Juinen/Bloomberg

Chancellor Angela Merkel’s government senses trouble brewing for the German economy, but voters don’t see the storm clouds.

That’s creating a conundrum for German officials on how to head off risks without sapping further momentum as Merkel enters the final years of her political career. While the government forecasts only a brief slowdown before growth picks up again next year, officials’ body language suggests they are preparing for a potentially much harsher outcome.

The leaders preparing to take over when Merkel steps aside are worried too. They say voters could be caught unawares by an economic shock in the middle of the political transition from Merkel’s rule. Two senior party officials this month voiced concerns that such a double whammy could shake up the political map ahead of the next election. They asked not to be identified questioning the chancellor’s approach.

The clearest sign of the government’s anxiety is its risky plan to patch up Deutsche Bank AG through a merger with domestic rival Commerzbank AG. The fact that ministers are prepared to take the political hit for as many as 30,000 job cuts shows just how seriously they take the threat of a recession exposing the country’s flagship lender to a potential bailout.

Lawmakers from the governing coalition are also discussing whether they need to loosen the constitutional restrictions on deficit spending. That suggests they are also contemplating a more severe downturn.

Fiscal Firepower

“There are many global risks currently overshadowing the economy,” said Matthias Heider, a lawmaker from Merkel’s CDU party and a member of the economics committee in the lower house of parliament. “If global risks accumulate further, it might be too much for growth to be sustained.”

Merkel herself has carefully avoided setting off any alarm bells, even as Brexit, China’s slowdown and U.S. trade tensions weigh on Germany. In an address to the Bundestag last week, she told lawmakers that she foresees “times of growth” ahead, while the outlook for the European Union has become “somewhat clouded.”

Olaf Scholz Photographer: Chris Ratcliffe/Bloomberg

Finance Minister Olaf Scholz said in a newspaper interview this week that he’s prepared to use all the fiscal leeway available to him to stimulate the economy if a crisis hits, though he ruled out changing the rules to make more ammunition available.

Read more: Germany Paralyzed by Trump’s Attacks on World That Made It Rich

Bracing for a worst case, the government is prepared to pass a set of recession-busting measures ranging from tax cuts to investment incentives, according to people familiar with the government’s plans, who asked not to be identified because the deliberations are private. The proposals are preliminary, and there remain differences within the government over the types of stimulus, with some in Merkel’s coalition calling for consumer-focused spending, while others preferring to target businesses, the people said.

While the mechanics of any package are in flux, Germany is in position to flex its financial muscle after years of rigid spending discipline brought public debt down to just 60 percent of output last year. Scholz hinted he may be ready to deploy some of that firepower when presenting his latest budget last week in Berlin, saying that “good, stable finances are the best way to prepare” for a period of greater economic uncertainty.

In her address to the Bundestag, Merkel noted that German debt now fulfills one of the euro area’s key stability criteria.

America First Fallout

Germany surged out of the financial crisis a decade ago with robust demand from China for German cars, contributed to a historic run of uninterrupted growth and record-low unemployment. But President Donald Trump’s America First protectionism has knocked Germany’s export machine off track.

The latest sign came last week, when the Council of Economic Experts slashed its 2019 growth forecast to 0.8 percent from an earlier prediction of 1.8 percent. Its central scenario though is still for a rebound to 1.4 percent next year.

Bolstered by a robust labor market, German consumer confidence remains buoyant -- projected for April to be at 10.4 points, a mild dip from a high of 11 points from February last year. The optimism has fueled strong domestic spending, which is taking the sting out of the country’s export struggles.

Even if concerns are intensifying in Berlin, the message from Merkel’s inner circle is clear: don’t rock the boat.

Peter Altmaier Photographer: Marlene Awaad/Bloomberg

When Scholz told the Bild tabloid in January that “the fat years are over” he was quickly slapped down by Economy Minister Peter Altmaier, a close ally of Merkel.

“One shouldn’t undermine the economic upswing by talking it down,” Altmaier said.

Since then, Scholz has mainly referred to the country’s outlook as a “normalization.”

— With assistance by Arne Delfs, Patrick Donahue, and Richard Weiss