IMF Executive Board Concludes 2023 Article IV Consultation with Germany

July 17, 2023

Washington, DC: On July 12, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Germany.

The German economy has demonstrated resilience following the shut-off of Russian gas supply last year . Highly adverse scenarios of widespread energy scarcity have been avoided due to strong efforts to conserve gas and secure energy supplies, as well as the lack of severe winter weather. Nevertheless, adverse effects from the energy shock and tightening financial conditions have been sufficient to tilt the economy into recession in recent months. Inflation also spiked as the energy price shock added to existing pandemic-related bottlenecks, though inflation is now falling as these effects ease. The overall capital and liquidity positions of Germany’s banking and insurance systems remain at solid levels, but banking turmoil in other advanced economies earlier this year has heightened the focus on potential financial stability risks associated with rising interest rates.

The energy shock and tightening financial conditions are expected to keep annual GDP growth slightly negative in 2023 . Growth is expected to regain momentum gradually in 2024–25, as the lagged effects of monetary tightening gradually dissipate and the economy adjusts to the energy shock. Inflation is expected to continue falling amid softening energy prices and tightening fiscal policy, but with core inflation declining more slowly than headline due to rising nominal wage pressures and lagged passthrough of lower global commodity prices to core inflation. Over the medium term, average GDP growth is expected to fall back below 1 percent due to accelerating headwinds from population aging, absent significant increases in productivity and/or labor supply growth.

Uncertainty is unusually high, with substantial risks in both directions, which on balance are tilted downward for growth . Uncertainty around the persistency of core inflation is especially high, as a rapid rise in core inflation to its current levels has not been observed in Germany or most other advanced economies for decades. One near-term risk is that core inflation could remain elevated longer than expected, requiring tighter monetary policy, or that renewed turbulence in global markets could further tighten financial conditions, with adverse effects on growth and real estate markets. An abrupt global slowdown would also adversely affect activity, especially in the export sector. Upside risks include a possible stronger-than-expected recovery in external demand or faster-than-expected decline in core inflation. Over the medium term, key risks include uncertainty regarding the pace of productivity and labor supply growth and rising risks of global geoeconomic fragmentation.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities’ strong policies that have resulted in remarkable economic resilience despite the adverse spillovers from Russia’s war in Ukraine. Nonetheless, the energy supply shock and tighter financial conditions are weighing on near‑term economic outlook, core inflation remains stubbornly elevated, and downside risks dominate for growth amid high uncertainty. Against this background, Directors called for policies to ensure disinflation and financial stability over the short term and to achieve stronger and greener growth over the medium term.

Directors broadly concurred that fiscal tightening in the near term is needed to support disinflation. In this context, they broadly welcomed the authorities’ plans to save the expected underspending on energy price relief and any revenue overperformance. Allowing energy relief measures to expire as scheduled would also be important. Directors also emphasized that fiscal policy should remain flexible, letting automatic stabilizers kick in if downside risks materialize.

Over the medium and longer term, Directors noted the need to create more fiscal room to accommodate rising aging pressures and increase public investment. Such measures would support potential growth and reduce imbalances in the external position, which is assessed to be stronger than the level implied by medium‑term fundamentals and desirable policies. Directors broadly noted that expenditure reforms and mobilizing additional revenue could be possible reform options. Revising the debt‑brake rule could also be considered following the EU fiscal rules review to lessen reliance on extrabudgetary spending.

Directors welcomed Germany’s ambitious and comprehensive Recovery and Resilience Plan. They agreed that addressing population aging, labor skill shortages, and low productivity are critical to boosting Germany’s potential growth. They also welcomed plans to promote digitalization, skilled immigration, and upskilling of workers and encouraged further efforts to enhance incentives to undertake R&D, expand funding for young and innovative firms, and lower market entry barriers.

Directors acknowledged that Germany’s financial system remains sound. However, with systemic risks rising amidst higher interest rates, they underscored the importance of identifying vulnerable banks and subjecting them to intensive supervision, as well as encouraging a conservative approach to bank capital distributions. Continued efforts to close data gaps in financial sector supervision also remain important. To further strengthen safety nets and crisis management frameworks, Directors encouraged the authorities to consider moving to a single mandatory depositor protection scheme with a robust public liquidity backstop. Furthermore, Directors stressed the need to add income‑based measures to the macroprudential toolkit. They also welcomed efforts to further strengthen the AML/CFT framework and continue to address the recommendations in the 2022 FATF mutual evaluations.

Directors commended Germany’s leading role in the climate agenda, including for meeting its emission targets in 2022. They noted that continued efforts are needed to meet climate change mitigation targets and encouraged the authorities to improve targeting of subsidies that support the green transition and promote a consistent and fiscally affordable approach across EU countries.

Directors welcomed Germany’s continued support for a multilateral, rules‑based trading system that promotes mutually beneficial cooperation on trade and cross‑border flows. At the same time, they encouraged the authorities to identify the country’s critical dependencies in terms of supply and sale markets, assess the impact of global economic fragmentation, and develop strategies for coping with these risks.

It is expected that the next Article IV consultation with Germany will be held on the standard 12‑month cycle.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: .

Germany: Selected Economic Indicators, 2022–24 1/






Real GDP growth (%)




Total domestic demand growth (%)




Output gap (% of potential GDP)





Unemployment rate (%, ILO)




Employment growth (%)





Inflation (%, headline, period avg.)




Inflation (%, core, period avg.)




General Government Finances

Fiscal balance (% of GDP)




Revenue (% of GDP)




Expenditure (% of GDP)




Public debt (% of GDP)




Money and Credit

Broad money (M3) (end of year, % change) 2/


Credit to private sector (% change)


10-year government bond yield (%)


Balance of Payments

Current account balance (% of GDP)




Trade balance (% of GDP)




Exports of goods (% of GDP)




Volume (% change)




Imports of goods (% of GDP)




Volume (% change)




Service trade balance (% of GDP)




FDI balance (% of GDP)




Reserves minus gold (billions of US$)


External Debt (% of GDP)


Exchange Rate

REER (% change)


NEER (% change)


Real effective rate (2010=100) 3/


Nominal effective rate (2010=100) 4/


Sources: Deutsche Bundesbank, Eurostat, Federal Statistical Office, Haver Analytics, and IMF staff calculations.

1/ GDP and its components are unadjusted for working days.

2/ Reflects Germany's contribution to M3 of the euro area.

3/ Real effective exchange rate, CPI based, all countries.

4/ Nominal effective exchange rate, all countries.

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