Germany’s Economic Outlook in Six Charts
IMF News, July 5, 2018
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- Published: July 5, 2018
Economic momentum and external balance
- Growth rose to 2.5 percent in 2017.
- Momentum expected to persist in 2018.
- Business investment expected to be dynamic.
- Strong job growth and unemployment falling to new post-reunification lows; rising wages should boost private consumption.
- Higher wage growth and stronger imports would help bring down Germany’s large current account surplus, which stood at 8¼ percent of GDP in 2017.
Public finances and fiscal outlook
- The budget surplus rose to 1.2 percent in 2017 — the highest level since reunification.
- Fiscal surpluses are projected to remain high over the medium term, pushing debt down to 42 percent of GDP by 2023.
- The strong fiscal position can be used to increase investment in physical, digital, and human capital.
Investment priorities and human capital
- Public investment in infrastructure, especially at the municipal levels, can help crowd in private investment and support external rebalancing.
- New government plans to increase investment in digital infrastructure, especially high-speed nationwide internet connections, are essential to keep Germany’s edge as an innovation leader.
- With the high probability of an average German job of being lost to automation, investment in life-long learning is key to boosting productivity and long-run growth.
Labor force participation and demographic challenges
- Germany’s workforce will begin shrinking in 2020.
- Policies to tap into the potential of women, older workers, and migrants can help offset this decline.
- Expanding childcare and after-school programs would provide greater opportunities for women to pursue full-time employment.
- Pension and labor market reforms that make it more attractive to stay in the workforce longer can reduce the need to save and lift growth.
Entrepreneurship and venture capital
- Fostering entrepreneurship can raise productivity growth and investment.
- Germany is an innovation leader, but with a relative weakness in venture capital.
- The government should encourage the provision of scale-up capital to support startups at the growth stage.
- New business creation and expansion are essential for technological diffusion and productivity growth.
Housing market and financial stability
- Rising wages, large immigration flows, and low interest rates are driving up the demand for housing.
- House prices in major cities such as Munich, Hamburg and Frankfurt have risen much faster than in other European Union cities.
- Policy options: lower the burden on new construction to ease supply constraints; strengthen the prudential toolkit to help preserve financial stability.
IMF News — Germany’s Economic Outlook in Six Charts, July 5, 2018