{
  "title": "IMF Executive Board Concludes 2018 Article IV Consultation with Germany",
  "publication": "IMF News, July 4, 2018",
  "sourceUrl": "https://www.imf.org/en/news/articles/2018/07/04/pr18276-imf-executive-board-concludes-2018-article-iv-consultation-with-germany",
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  "summary": "Date of press release: July 4, 2018.",
  "publishDate": "2018-07-04",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Date of press release: July 4, 2018.\n- The Executive Board of the International Monetary Fund concluded the Article IV consultation with Germany on June 29, 2018.\n- Germany’s economic performance in 2017 was described as strong, underpinned by solid domestic demand and a rebound in exports in the second half of the year."
    },
    {
      "heading": "Economic performance and labor market (2017)",
      "content": "- Real GDP growth: 2.5 percent in 2017.\n- Stabilization of refugee-related expenditures led to a slowdown in public consumption.\n- Capacity utilization was already high and continued to rise.\n- Labor market tightened further, putting incremental pressure on wages.\n- Headline and core inflation reached 1.5 percent at the end of 2017.\n- General government surplus reached 1.2 percent of GDP, the highest level since reunification.\n- Fiscal stance remained broadly neutral.\n- Current account surplus declined to 8 percent in 2017, from 8.5 percent in 2016, as both the trade and income balances deteriorated."
    },
    {
      "heading": "Financial system and housing market",
      "content": "- Total credit accelerated in 2017 as households and firms took advantage of the low interest rate environment, but remained broadly in line with nominal GDP growth.\n- House prices accelerated further in dynamic urban areas due to continued urbanization, inelastic housing supply, and easy financing conditions.\n- Banking sector: regulatory capital remained adequate, but profitability continued to be weak, reflecting structural factors, some crisis legacies, and the low interest rate environment; some banks remain under close supervisory scrutiny.\n- Life insurance sector: restructuring occurred in response to the low interest rate environment; profitability remains an issue due to extensive reliance on guaranteed products."
    },
    {
      "heading": "Outlook and risks",
      "content": "- Near-term expansion expected to continue, but growth projected to slow markedly over the medium to long term due to unfavorable demographics and productivity trends.\n- Short-term risks described as substantial:\n  - A significant rise in global protectionism.\n  - A hard Brexit.\n  - A reassessment of sovereign risk in the euro area leading to renewed financial stress.\n- Such shocks could affect Germany’s exports and investment."
    },
    {
      "heading": "Executive Board Assessment — findings and policy recommendations",
      "content": "- Directors commended Germany’s strong performance and prospects for continued solid near-term growth driven by robust domestic demand amid a tight labor market and accelerating wages.\n- Directors noted sizable external imbalances and important risks that cloud the outlook.\n- Policy focus recommended: bolster potential growth given unfavorable demographic prospects.\n- Specific recommendations and priorities:\n  - Further expand public investment in physical and human capital.\n  - Prioritize measures that incentivize labor supply and help improve the environment for private investment.\n  - Use fiscal space to further raise public investment (while alleviating bottlenecks at the municipal level).\n  - Expand childcare and after‑school programs.\n  - Reduce the labor tax wedge.\n  - Provide additional funding for primary education and life‑long learning.\n  - Balance spending to raise potential growth with maintaining strong buffers for potential economic risks and upcoming demographic challenges.\n  - Implement pension and labor market reforms that make it more attractive to extend working lives to lower the public pension bill, raise growth, and reduce the need to save.\n- On productivity and entrepreneurship:\n  - Improve access to venture capital.\n  - Provide tax incentives for R&D to small‑ and medium‑size enterprises.\n  - Reduce administrative burdens.\n  - Ensure incentives, regulations, and funding availability are appropriate to complete Germany’s digital transformation.\n  - Accelerate competition‑enhancing reforms in parts of the services sector and network industries.\n- On housing and macroprudential policy:\n  - Accelerating house prices in Germany’s most dynamic cities deserve close monitoring.\n  - Lack of granular city-level data prevents a full assessment; urgently address data gaps.\n  - Strengthen the macroprudential toolkit to guard against pockets of financial vulnerability.\n- On financial sector resilience:\n  - Profitability in the bank and life insurance sectors remains low; accelerate restructuring efforts to durably strengthen resilience and reduce risks.\n  - Continue supervisory attention to progress in implementing restructuring plans and reducing interest rate risk in banking and insurance."
    },
    {
      "heading": "Selected Economic Indicators, 2016–19 (projections)",
      "content": "- Output\n  - Real GDP growth (%): 2016: 1.9; 2017: 2.5; 2018: 2.2; 2019: 2.1\n  - Total domestic demand growth (%): 2016: 2.4\n  - Output gap (% of potential GDP): 2016: 0.2; 2017: 0.9; 2018: 1.3; 2019: 1.6\n- Employment\n  - Unemployment rate (%, ILO): 2016: 4.2; 2017: 3.7; 2018: 3.6; 2019: 3.5\n  - Employment growth (%): 2016: 1.1; 2017: 0.6; 2018: 0.4\n- Prices\n  - Inflation (%): 2016: 1.7; 2017: 1.8\n- General government finances\n  - Fiscal balance (% of GDP): 2016: 1.0; 2017: 1.2; 2018: 1.4\n  - Revenue (% of GDP): 2016: 45.0; 2017: 45.1; 2018: 45.3; 2019: 45.2\n  - Expenditure (% of GDP): 2016: 44.0; 2017: 43.9; 2018: 43.8\n  - Public debt (% of GDP): 2016: 68.2; 2017: 64.1; 2018: 60.0; 2019: 56.1\n- Money and credit\n  - Broad money (M3) (end of year, % change) 1/: 2016: 5.7; 2017: 4.3\n  - Credit to private sector (% change): 2016: 10-year government bond yield (%)\n- Balance of payments\n  - Current account balance (% of GDP): 2016: 8.5; 2017: 8.0; 2018: 8.3; 2019: 8.1\n  - Trade balance (% of GDP): 2016: 7.9; 2017: 7.6; 2018: 7.3\n  - Exports of goods (% of GDP): 2016: 37.9; 2017: 38.9; 2018: 39.4; 2019: 40.0\n  - Exports volume (% change): 2016: 2.3; 2017: 5.0; 2018: 4.9\n  - Imports of goods (% of GDP): 2016: 29.4; 2017: 30.8; 2018: 31.3; 2019: 32.0\n  - Imports volume (% change): 2016: 3.8; 2017: 5.9; 2018: 5.2\n  - FDI balance (% of GDP): 2016: 1.5\n  - Reserves minus gold (billions of US$): 59.6; 59.4\n  - External Debt (% of GDP): 148.0; 140.5\n- Exchange rate\n  - Real effective rate (2005=100) 2/: 2016: 92.4; 2017: 93.6\n  - Nominal effective rate (2005=100) 3/: 2016: 98.6; 2017: 100.1\n\nPress Release No. 18/276 — IMF Communications Department, MEDIA RELATIONS\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Germany and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/07/04/pr18276-imf-executive-board-concludes-2018-article-iv-consultation-with-germany"
    }
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    "Published: July 4, 2018",
    "Date of press release: July 4, 2018.",
    "The Executive Board of the International Monetary Fund concluded the Article IV consultation with Germany on June 29, 2018.",
    "Germany’s economic performance in 2017 was described as strong, underpinned by solid domestic demand and a rebound in exports in the second half of the year.",
    "Real GDP growth: 2.5 percent in 2017.",
    "Stabilization of refugee-related expenditures led to a slowdown in public consumption.",
    "Capacity utilization was already high and continued to rise.",
    "Labor market tightened further, putting incremental pressure on wages.",
    "Headline and core inflation reached 1.5 percent at the end of 2017.",
    "General government surplus reached 1.2 percent of GDP, the highest level since reunification.",
    "Fiscal stance remained broadly neutral.",
    "Current account surplus declined to 8 percent in 2017, from 8.5 percent in 2016, as both the trade and income balances deteriorated.",
    "Total credit accelerated in 2017 as households and firms took advantage of the low interest rate environment, but remained broadly in line with nominal GDP growth.",
    "House prices accelerated further in dynamic urban areas due to continued urbanization, inelastic housing supply, and easy financing conditions.",
    "Banking sector: regulatory capital remained adequate, but profitability continued to be weak, reflecting structural factors, some crisis legacies, and the low interest rate environment; some banks remain under close supervisory scrutiny.",
    "Life insurance sector: restructuring occurred in response to the low interest rate environment; profitability remains an issue due to extensive reliance on guaranteed products.",
    "Near-term expansion expected to continue, but growth projected to slow markedly over the medium to long term due to unfavorable demographics and productivity trends.",
    "Short-term risks described as substantial:",
    "Such shocks could affect Germany’s exports and investment.",
    "Directors commended Germany’s strong performance and prospects for continued solid near-term growth driven by robust domestic demand amid a tight labor market and accelerating wages.",
    "Directors noted sizable external imbalances and important risks that cloud the outlook.",
    "Policy focus recommended: bolster potential growth given unfavorable demographic prospects.",
    "Specific recommendations and priorities:",
    "On productivity and entrepreneurship:",
    "On housing and macroprudential policy:",
    "On financial sector resilience:",
    "Output",
    "Employment",
    "Prices",
    "General government finances",
    "Money and credit",
    "Balance of payments",
    "Exchange rate",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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