{ "title": "Germany: Staff Concluding Statement of the 2017 Article IV Mission", "publication": "IMF News, May 15, 2017", "sourceUrl": "https://www.imf.org/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission", "overlayPath": "/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission/index.md", "summary": "Germany’s open and innovative economy has been performing well, underpinned by prudent economic management, past structural reforms, and a well-developed social safety net.", "publishDate": "2017-05-15", "sections": [ { "heading": "Overview", "content": "- Germany’s open and innovative economy has been performing well, underpinned by prudent economic management, past structural reforms, and a well-developed social safety net.\n- Employment growth is strong, the unemployment rate is at a record low, growth is above potential, and the fiscal position keeps strengthening.\n- Despite high and rising capacity utilization and job vacancy rate, wage growth and core inflation remain subdued and business investment lacks momentum.\n- Adverse demographics weigh on long-term growth prospects.\n- The large and persistent current account surplus reflects high domestic savings and better investment opportunities abroad, as well as external factors.\n- Recommendation: embrace a set of coordinated fiscal and structural policies to safeguard strengths and address remaining challenges, including reducing external imbalances." }, { "heading": "Key policy recommendations", "content": "- Use available fiscal space for initiatives that enhance growth potential:\n - Investment in physical and digital infrastructure.\n - Child care.\n - Refugee integration.\n - Relief of the tax burden on labor.\n- Pension reforms to make it attractive to work longer to increase old-age income, boost potential output, improve the fiscal outlook, and reduce the need to save for retirement.\n- Accelerate competition-enhancing reforms in some network industries and professional services; continue policy focus on innovation and the digital economy.\n- Continue attention to relative poverty risk; anti-poverty policies should preserve achievements of past labor market reforms.\n- Monitor mortgage market developments closely as housing prices accelerate; address important data gaps." }, { "heading": "Near-term outlook and risks", "content": "- Cyclical upswing expected to continue in the near term.\n- 2016: GDP growth firmed, driven by strong public and private consumption and construction activity; exports and equipment investment held back by weak external demand.\n- 2017: growth should remain stable as foreign demand is expected to strengthen and consumption to soften due to higher commodity prices curbing real income growth.\n- Economic immigration should continue to provide significant contribution to employment growth; inflow of asylum-seekers slowed from its 2016 peak and refugees are gradually entering the labor force.\n- Rapid house price increases should continue to bolster investment in construction.\n- Risks: balanced in the short term; predominantly tilted to the downside in the longer run (e.g., anti-globalization policies abroad; insufficient reform progress in the euro area)." }, { "heading": "Labor market, wages, and inflation", "content": "- Hartz reforms: labor force participation has been rising and unemployment falling, with large gains in employment, also fed by immigration.\n- Surge in labor supply initially reinforced downward pressures on low wages but did not increase labor income inequality due to powerful positive employment effects.\n- Wage and labor earnings inequality broadly stable since 2010; minimum wage level deemed sufficiently prudent to avoid significant employment harm while raising the wage floor.\n- Despite increasing signs of labor market tightness, average wage gains have been subdued.\n- Baseline forecast: gradual demand-driven rise in wage, core, and headline inflation, consistent with tight labor market conditions.\n- Risk: wages may not respond sufficiently, resulting in protracted low inflation in Germany and slower-than-expected normalization of inflation and monetary conditions in the euro area.\n- Policy note: authorities could emphasize the importance of robust wage and price growth while respecting autonomy of social partners in wage setting." }, { "heading": "External balance", "content": "- 2016: Germany’s current account surplus was the world’s largest in U.S. dollar terms; ratio to GDP edged down from 8.6 to 8.3 percent.\n- Surplus expected to narrow slowly over the medium term as energy and other import prices recover, private investment strengthens, and wage growth supports domestic demand and competitiveness realignment.\n- Under current policies, projected adjustment is limited — about 1 percent of GDP by 2022.\n- Policies to boost public and private investment and reduce the need for private saving (e.g., promoting longer working lives) would accelerate external rebalancing." }, { "heading": "Fiscal position and recommendations", "content": "- Debt fell to 68.3 percent of GDP in 2016.\n- 2016 general government surplus climbed to 0.8 percent of GDP.\n- Primary spending rose (including for refugees), but higher tax revenues from favorable labor market performance and buoyant corporate tax receipts, plus a decline in the interest bill, more than compensated.\n- Moderate fiscal stimulus expected in the current year (higher social spending, some income tax relief, larger public investment) while preserving a comfortable buffer above European and national fiscal rules; forecasted buffer to rise over coming years.\n- Policy guidance:\n - Use fiscal space to raise growth potential by encouraging investment, promoting labor supply, and boosting productivity.\n - Reduce the large and increasing tax burden on labor to support labor supply.\n - Overcome barriers to expanding investment in public infrastructure, accelerate initiatives to rebuild staffing capacity (particularly at the local level) for planning and administration of investment projects.\n - Federal Infrastructure Corporation for Highways is welcome to ensure a more stable and efficient framework for transport investment.\n - Expand childcare and after-school programs; provide vocational training to refugees; foster digitalization and innovation." }, { "heading": "Fiscal planning and revenue projections", "content": "- Tax revenue projections (especially for personal income taxes) have proven overly conservative post-crisis, resulting in a tighter fiscal stance than originally intended.\n- Persistent bias partly explained by underestimation of employment growth in official macroeconomic forecasts.\n- Recommendation: re-examine macroeconomic relationships underlying revenue projections and estimated tax sensitivity to macroeconomic developments to enable more precise fiscal planning." }, { "heading": "Pensions and long-term sustainability", "content": "- If fiscal space under rules is fully used and considering a wide range of realistic macroeconomic shocks, government debt would still decline rapidly with high probability.\n- Long-term fiscal sustainability is challenged by rising aging costs.\n- Pension reforms that make it more attractive to extend working lives would lower the pension bill, raise growth, reduce household saving needs, and help lower external imbalances.\n- Resulting sustainability gains could facilitate some relaxation of fiscal targets in the medium and long term." }, { "heading": "Social cohesion and poverty", "content": "- Disposable income inequality (Gini coefficient) broadly stable over the last decade and near the European median.\n- Slow secular rise of the at-risk-of-poverty rate warrants attention.\n- New social cohesion measures from the authorities’ Fifth Poverty and Wealth Report were put in place; impact too early to assess.\n- If poverty risk does not recede, consider reviewing targeting and effectiveness of some social benefits.\n- Anti-poverty policies should preserve achievements of past labor market reforms.\n- Measures to enhance labor force participation of women with children and facilitate refugee labor market integration recommended." }, { "heading": "Competition, innovation, and digitalization", "content": "- Need to accelerate competition-enhancing reforms in some network industries and professional services.\n- Recent law to boost railways efficiency strengthens regulator but has limited effect on long-distance passenger competition.\n- No new competition-enhancing measures in postal services; regulator should prevent discrimination against smaller competitors and new entrants.\n- Government’s 2016 National Action Plan on regulated professions contains limited measures; some professions remain overregulated.\n- Digitalization:\n - Germany is an innovation leader in Europe, but network infrastructure and skilled labor shortages hold back progress.\n - Average stock of capital per worker in ICT is low in international comparison; Germany ranks 25th in average download speeds.\n - Federal financial support for fast broadband in remote areas and a public/private initiative to promote ultrafast internet underway.\n - Digital Networks Act will reduce cost of rolling out optical fiber; regulatory frameworks adapting to digitalization advances.\n - “High-Tech Strategy” initiatives to promote innovation and foster venture capital (grants, equity financing, preferential tax treatment) are welcome; sustain current momentum." }, { "heading": "Housing and macroprudential measures", "content": "- Housing prices remain in line with fundamentals at the aggregate level, though hot spots are developing as prices accelerate.\n- Government measures: stepped-up sales of federally-owned land and properties below market price for affordable housing, more funds for social housing, promotion of building code harmonization.\n- To significantly boost short-term supply, complement federal measures by encouraging local authorities to relax zoning and height restrictions.\n- New legislation introduces loan-to-value ratios and amortization requirements but omits debt-to-income and debt-service-to-income ratios.\n- New law does not grant supervisors power to request loan-level data — a key prerequisite for effective macroprudential instruments.\n- Recommendation: conduct a regular (at least annual) survey in hotspots to assess household leverage, loan affordability, and concentration of bank exposure to partially overcome data gaps." }, { "heading": "Financial sector resilience", "content": "- Banking sector:\n - Regulatory capital generally comfortable, but cost-to-income and leverage remain high.\n - Low profitability reflects structural inefficiencies, crisis legacy issues, compliance provisions, and adjustment to new regulation.\n - Lower and flatter yield curves erode margins, especially in smaller retail banks.\n - Supervisors monitor interest rate risk via regular stress tests and scenario simulations (including ‘low for long’) and have imposed additional capital requirements on the most exposed banks.\n- Life insurance sector:\n - Low interest rates hurt solvency ratios; large duration gaps must be reduced through investment strategy changes and less reliance on guaranteed return products.\n - Supervisors closely monitor firms with high shares of guaranteed return products, large duration gaps, and low reserves for unrealized gains." }, { "heading": "Conclusion", "content": "- The mission thanks the authorities for their cooperation and willingness to engage in extensive and frank policy discussions.\n\nIMF Staff Concluding Statement, May 15, 2017\n\n---\n\n\n References\n\n- Germany and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission/bundle-manifest.json)", "Published: May 15, 2017", "Germany’s open and innovative economy has been performing well, underpinned by prudent economic management, past structural reforms, and a well-developed social safety net.", "Employment growth is strong, the unemployment rate is at a record low, growth is above potential, and the fiscal position keeps strengthening.", "Despite high and rising capacity utilization and job vacancy rate, wage growth and core inflation remain subdued and business investment lacks momentum.", "Adverse demographics weigh on long-term growth prospects.", "The large and persistent current account surplus reflects high domestic savings and better investment opportunities abroad, as well as external factors.", "Recommendation: embrace a set of coordinated fiscal and structural policies to safeguard strengths and address remaining challenges, including reducing external imbalances.", "Use available fiscal space for initiatives that enhance growth potential:", "Pension reforms to make it attractive to work longer to increase old-age income, boost potential output, improve the fiscal outlook, and reduce the need to save for retirement.", "Accelerate competition-enhancing reforms in some network industries and professional services; continue policy focus on innovation and the digital economy.", "Continue attention to relative poverty risk; anti-poverty policies should preserve achievements of past labor market reforms.", "Monitor mortgage market developments closely as housing prices accelerate; address important data gaps.", "Cyclical upswing expected to continue in the near term.", "2016: GDP growth firmed, driven by strong public and private consumption and construction activity; exports and equipment investment held back by weak external demand.", "2017: growth should remain stable as foreign demand is expected to strengthen and consumption to soften due to higher commodity prices curbing real income growth.", "Economic immigration should continue to provide significant contribution to employment growth; inflow of asylum-seekers slowed from its 2016 peak and refugees are gradually entering the labor force.", "Rapid house price increases should continue to bolster investment in construction.", "Risks: balanced in the short term; predominantly tilted to the downside in the longer run (e.g., anti-globalization policies abroad; insufficient reform progress in the euro area).", "Hartz reforms: labor force participation has been rising and unemployment falling, with large gains in employment, also fed by immigration.", "Surge in labor supply initially reinforced downward pressures on low wages but did not increase labor income inequality due to powerful positive employment effects.", "Wage and labor earnings inequality broadly stable since 2010; minimum wage level deemed sufficiently prudent to avoid significant employment harm while raising the wage floor.", "Despite increasing signs of labor market tightness, average wage gains have been subdued.", "Baseline forecast: gradual demand-driven rise in wage, core, and headline inflation, consistent with tight labor market conditions.", "Risk: wages may not respond sufficiently, resulting in protracted low inflation in Germany and slower-than-expected normalization of inflation and monetary conditions in the euro area.", "Policy note: authorities could emphasize the importance of robust wage and price growth while respecting autonomy of social partners in wage setting.", "2016: Germany’s current account surplus was the world’s largest in U.S. dollar terms; ratio to GDP edged down from 8.6 to 8.3 percent.", "Surplus expected to narrow slowly over the medium term as energy and other import prices recover, private investment strengthens, and wage growth supports domestic demand and competitiveness realignment.", "Under current policies, projected adjustment is limited — about 1 percent of GDP by 2022.", "Policies to boost public and private investment and reduce the need for private saving (e.g., promoting longer working lives) would accelerate external rebalancing.", "Debt fell to 68.3 percent of GDP in 2016.", "2016 general government surplus climbed to 0.8 percent of GDP.", "Primary spending rose (including for refugees), but higher tax revenues from favorable labor market performance and buoyant corporate tax receipts, plus a decline in the interest bill, more than compensated.", "Moderate fiscal stimulus expected in the current year (higher social spending, some income tax relief, larger public investment) while preserving a comfortable buffer above European and national fiscal rules; forecasted buffer to rise over coming years.", "Policy guidance:", "Tax revenue projections (especially for personal income taxes) have proven overly conservative post-crisis, resulting in a tighter fiscal stance than originally intended.", "Persistent bias partly explained by underestimation of employment growth in official macroeconomic forecasts.", "Recommendation: re-examine macroeconomic relationships underlying revenue projections and estimated tax sensitivity to macroeconomic developments to enable more precise fiscal planning.", "If fiscal space under rules is fully used and considering a wide range of realistic macroeconomic shocks, government debt would still decline rapidly with high probability.", "Long-term fiscal sustainability is challenged by rising aging costs.", "Pension reforms that make it more attractive to extend working lives would lower the pension bill, raise growth, reduce household saving needs, and help lower external imbalances.", "Resulting sustainability gains could facilitate some relaxation of fiscal targets in the medium and long term.", "Disposable income inequality (Gini coefficient) broadly stable over the last decade and near the European median.", "Slow secular rise of the at-risk-of-poverty rate warrants attention.", "New social cohesion measures from the authorities’ Fifth Poverty and Wealth Report were put in place; impact too early to assess.", "If poverty risk does not recede, consider reviewing targeting and effectiveness of some social benefits.", "Anti-poverty policies should preserve achievements of past labor market reforms.", "Measures to enhance labor force participation of women with children and facilitate refugee labor market integration recommended.", "Need to accelerate competition-enhancing reforms in some network industries and professional services.", "Recent law to boost railways efficiency strengthens regulator but has limited effect on long-distance passenger competition.", "No new competition-enhancing measures in postal services; regulator should prevent discrimination against smaller competitors and new entrants.", "Government’s 2016 National Action Plan on regulated professions contains limited measures; some professions remain overregulated.", "Digitalization:", "Housing prices remain in line with fundamentals at the aggregate level, though hot spots are developing as prices accelerate.", "Government measures: stepped-up sales of federally-owned land and properties below market price for affordable housing, more funds for social housing, promotion of building code harmonization.", "To significantly boost short-term supply, complement federal measures by encouraging local authorities to relax zoning and height restrictions.", "New legislation introduces loan-to-value ratios and amortization requirements but omits debt-to-income and debt-service-to-income ratios.", "New law does not grant supervisors power to request loan-level data — a key prerequisite for effective macroprudential instruments.", "Recommendation: conduct a regular (at least annual) survey in hotspots to assess household leverage, loan affordability, and concentration of bank exposure to partially overcome data gaps.", "Banking sector:", "Life insurance sector:", "The mission thanks the authorities for their cooperation and willingness to engage in extensive and frank policy discussions.", "[Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission/index.md", "json": "/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2017/05/15/mcs05152017-germany-staff-concluding-statement-of-the-2017-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T20:49:53.610Z" }