## Germany: Spend More At Home _IMF News, July 7, 2017_ ## Source details **Canonical URL:** [Germany: Spend More At Home](https://www.imf.org/en/news/articles/2017/07/05/na070717-germany-spend-more-at-home) ## Other formats - [Markdown version](/en/news/articles/2017/07/05/na070717-germany-spend-more-at-home/index.md) - [Structured JSON version](/en/news/articles/2017/07/05/na070717-germany-spend-more-at-home/index.json) - [Bundle manifest](/en/news/articles/2017/07/05/na070717-germany-spend-more-at-home/bundle-manifest.json) ## Bibliographic details - Published: July 7, 2017 --- ### Overall assessment of the German economy - The IMF’s assessment: the German economy is "performing well." - The IMF has raised its growth forecast for the year, reflecting expected benefits from the ongoing recovery in world trade. - Growth is creating a lot of jobs and the unemployment rate is "the lowest since reunification." *Key takeaway:* Strong growth and very low unemployment, but some domestic weaknesses warrant attention. ### Inflation, wages, and euro area implications - The IMF recommends allowing prices and wages to go up in Germany to help lift overall inflation in the euro area. - Objective cited: the European Central Bank’s price stability objective of "close to 2 percent." - Current situation: "Euro area inflation is currently below the ECB’s target, and has been for a few years." - Rationale: Germany accounts for "28 percent of the euro area economy," so its inflation dynamics strongly affect euro area inflation. - Expected dynamic: because Germany has been growing robustly and has low unemployment, it would be "normal and almost inevitable for its inflation to go above 2 percent for some time." - Benefit noted: once inflation reaches the objective, "monetary policy can be normalized and interest rates will rise, which will please German savers." ### Poverty, distributional concerns, and policy monitoring - The IMF notes the "fraction of the population at risk of poverty is rising" despite strong aggregate performance. - Affected groups include "older workers in certain parts of the country, single mothers, and other vulnerable people." - No single simple explanation identified; the IMF notes it "doesn't seem to be related to having more immigrants, for instance." - Recent German measures cited: increased allowances for housing, children, and help to return to the labor market for the long-term unemployed. - Recommendation: "monitor whether these new measures are effective." ### Germany’s current account surplus and investment gap - Germany has "the world’s largest current account surplus." - The IMF expresses two concerns about a large and persistent surplus: - Global imbalance channel: persistent surpluses imply persistent deficits elsewhere, which can lead deficit countries to accumulate excessive debt and require adjustment; surplus countries should adjust as well, especially within a currency union. - Domestic investment channel: a large surplus can indicate that the country is "investing abroad instead of at home," possibly because the country "is not very attractive to investors," which can translate into lower long-run growth. - Policy recommendations to reduce the surplus and boost domestic growth: - Increase public investment, noting that "investment has declined." - Improve infrastructure; "Better infrastructure would encourage more private investment, too." - Implement a pension reform "encouraging people to retire later in life" to reduce the need to save for retirement, encourage consumption, and limit aging effects on employment and growth. ### Fiscal stance, spending priorities, and labor taxation - The IMF commends Germany’s prudent fiscal policy: the government "kept its public deficits low—in fact, they had no deficit in the last three years—and reduced its public debt." - Debt trajectory: "by now debt is almost back to where it was before the crisis and is projected to continue falling in the coming years." - Given this fiscal position, the IMF sees "scope to use some resources for future growth, both on the spending and the tax side." - Recommended spending priorities: - Public infrastructure. - Integration of refugees, including "more targeted job training to the refugees" to ensure they can find work. - Kindergartens and after-school programs to "encourage more women to join the workforce." - Tax policy recommendation: use some resources to "reduce the taxation of labor." - Expected outcomes: these measures "would increase economic growth, and would also help address the problem of an aging population." *Source: https://www.imf.org/en/news/articles/2017/07/05/na070717-germany-spend-more-at-home (IMF Country Focus, July 7, 2017).* --- ## References - [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus) - [PRESS CENTER](http://presscenter.imf.org/) - [IMF Country Focus](https://www.imf.org/en/news/country-focus) - [Latest economic report](http://www.imf.org/en/Publications/CR/Issues/2017/07/07/Germany-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-45048) - [More research on Germany](http://www.imf.org/en/Publications/CR/Issues/2017/07/07/Germany-Selected-Issues-45049) - [Press release](http://www.imf.org/en/News/Articles/2017/07/07/pr17264-germany-imf-executive-board-concludes-the-2017-article-iv-consultation) - [Blog: growing older—Germany needs reforms](https://blogs.imf.org/2016/06/29/growing-older-germany-needs-reforms/) - [Public investment in Germany](https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Das-Public-Kapital-How-Much-Would-Higher-German-Public-Investment-Help-Germany-and-the-Euro-42533) - [Germany and the IMF](http://www.imf.org/external/country/DEU/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2017/07/05/na070717-germany-spend-more-at-home_