Germany’s Economic Outlook in Six Charts

IMF News, July 5, 2018

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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.

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.

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.

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.

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.

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