{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with Germany",
  "publication": "IMF News, July 10, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/07/09/pr-19270-germany-imf-executive-board-concludes-2019-article-iv-consultation-with-germany",
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  "summary": "After several years of real GDP growth averaging over 2 percent annually, Germany’s economy slowed sharply in the second half of 2018, reflecting a slowdown in global demand and temporary disruptions affecting the auto and chemical industries.",
  "publishDate": "2019-07-10",
  "sections": [
    {
      "heading": "Economic performance and recent developments",
      "content": "- After several years of real GDP growth averaging over 2 percent annually, Germany’s economy slowed sharply in the second half of 2018, reflecting a slowdown in global demand and temporary disruptions affecting the auto and chemical industries.\n- Real GDP growth reduced to 1.5 percent in 2018.\n- Unemployment hit a new record low, pushing wage growth up above 3 percent.\n- Investment remained strong.\n- Core inflation was 1.6 percent by the end of 2018.\n- The general government recorded a fiscal surplus of 1.7 percent of GDP in 2018 — its fifth consecutive year of fiscal surplus and its largest in nearly 30 years.\n- The current account surplus declined to 7.3 percent of GDP (down from 8.0 percent in 2017), reflecting a narrowing of the goods trade balance.\n- Credit grew broadly in line with GDP in 2018, but new lending to nonfinancial corporations was increasingly channeled to relatively riskier firms while lending standards were eased.\n- Prices of residential and commercial real estate continued to rise rapidly, especially in dynamic urban areas.\n- The “low-for-long” interest rate environment is putting pressure on the financial sector’s profitability, adding to the challenge of high costs and slow progress with restructuring."
    },
    {
      "heading": "Outlook and risks",
      "content": "- Outlook assumes a gradual return of output to trend in 2019, but is subject to significant uncertainty.\n- External vulnerability and downside scenarios:\n  - Rising global protectionism would hurt exports and investment.\n  - A more pronounced China slowdown would hurt exports and investment.\n  - A no-deal Brexit would hurt exports and investment.\n  - Tighter global financial conditions could trigger sharp corrections in already stretched valuations across asset classes.\n- Medium-term headwinds: unfavorable demographics, low productivity growth, and the impending energy transition expected to weigh on growth."
    },
    {
      "heading": "Executive Board assessment — key messages",
      "content": "- Directors commended the German authorities for skillful economic management that underpinned growth, strengthened the fiscal position, and reduced unemployment to a historically low level.\n- Directors noted the recent economic slowdown and downside risks that weigh on growth prospects.\n- Long-term challenges highlighted: unfavorable demographics and weak productivity growth, as well as external risks from trade tensions and the Brexit process.\n- Need to address external imbalances and ensure benefits of strong economic performance are broadly shared.\n  - External surplus partly reflects high corporate savings, widening top income inequality, and compressed household consumption.\n  - Forceful policy measures recommended to ensure broader sharing of gains.\n  - Continued faster wage growth and boosting disposable income through the tax and benefit system would be helpful."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Fiscal policy and public investment:\n  - Directors welcomed the moderate fiscal expansion in 2019.\n  - While maintaining buffers for aging population and contingent liabilities, most Directors encouraged using available fiscal space to bolster potential growth and facilitate rebalancing.\n  - Recommended measures: investments in infrastructure; tax measures to raise disposable income for low-and middle-income households; incentives to promote labor force participation by female and elderly workers; tax credit for further research and development.\n  - Authorities’ readiness to consider additional fiscal stimulus in the event of a severe economic downturn was welcomed.\n- Taxation and international cooperation:\n  - Directors commended the authorities’ commitment to promote fair and competitive corporate taxation and seek collaborative solutions to international tax issues.\n- Structural reforms and productivity:\n  - Expedite structural reforms to promote innovation, investment, and competition, including in business services and regulated professions.\n  - Encourage upgrading digital infrastructure, implementing the e-government strategy, and improving access to venture capital.\n- Energy and environment:\n  - Germany is on track to meet its renewable energy target.\n  - Directors welcomed consideration of a carbon tax and carbon pricing as part of the strategy for curbing greenhouse gas emissions.\n- Financial sector and macroprudential policy:\n  - Progress in implementing FSAP recommendations was welcomed.\n  - Noted low profitability in both the bank and life insurance sectors, elevated macro-financial vulnerabilities, and rapidly rising real estate prices in dynamic cities.\n  - Need to monitor interest rate risk and accelerate restructuring efforts to durably enhance financial sector resilience.\n  - Welcomed activation of the counter-cyclical capital buffer and encouraged further steps to address data gaps for fuller financial stability assessment.\n  - Supported expanding the macroprudential toolkit, including tools for the commercial real estate market.\n- Governance and anti-corruption:\n  - Directors appreciated Germany’s voluntary participation in the Fund’s enhanced governance framework on the supply and facilitation of corruption.\n  - Commended strong anti-bribery enforcement actions and commitment to continuing efforts."
    },
    {
      "heading": "Selected economic indicators and projections (2017–20)",
      "content": "- Output\n  - Real GDP growth (%) 1/: 2017: 2.2; 2018: 1.4; 2019: 0.7; 2020: 1.7\n  - Total domestic demand growth (%) 1/: 2017: 2.0; 2018: 1.9; 2019: 1.3\n  - Output gap (% of potential GDP): 2017: 0.8; 2018: 1.1; 2019: 0.6; 2020: 0.5\n- Employment\n  - Unemployment rate (%, ILO): 2017: 3.8; 2018: 3.4; 2019: 3.2; 2020: 3.1\n  - Employment growth (%): 2017: 0.4\n- Prices\n  - Inflation (%, headline): 2017: 1.8\n  - Inflation (%, core): 2017: 1.5\n- General government finances\n  - Fiscal balance (% of GDP): 2017: 1.0\n  - Revenue (% of GDP): 2017: 45.0; 2018: 45.6\n  - Expenditure (% of GDP): 2017: 43.9; 2018: 44.6\n  - Public debt (% of GDP): 2017: 64.5; 2018: 60.9; 2019: 58.0; 2020: 55.0\n- Money and credit\n  - Broad money (M3) (end of year, % change) 2/: 2017: 4.3; 2018: 4.5\n  - Credit to private sector (% change): 2017: 4.2; 2018: 4.9\n- Balance of payments\n  - Current account balance (% of GDP): 2017: 8.0; 2018: 7.3; 2019: 7.1; 2020: 6.7\n  - Trade balance (% of GDP): 2017: 6.0; 2018: 5.9\n  - Exports of goods (% of GDP): 2017: 38.3; 2018: 38.2; 2019: 38.7; 2020: 38.9\n  - Exports volume (% change): 2017: 5.7; 2018: 2.3; 2019: 3.6\n  - Imports of goods (% of GDP): 2017: 30.6; 2018: 31.6; 2019: 32.2; 2020: 32.6\n  - Imports volume (% change): 2017: 3.7\n  - Reserves minus gold (billions of US$): 2017: 59.4; 2018: 59.2\n  - External Debt (% of GDP): 2017: 145.0; 2018: 143.2\n- Exchange rate\n  - REER (% change): 2017: 1.2\n  - NEER (% change): 2017: 2.4\n  - Real effective rate (2005=100) 3/: 2017: 93.8; 2018: 95.7\n  - Nominal effective rate (2005=100) 4/: 2017: 100.1; 2018: 102.5\n\nIMF Executive Board Concludes 2019 Article IV Consultation with Germany — Press Release No. 19/270\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/2019/07/09/pr-19270-germany-imf-executive-board-concludes-2019-article-iv-consultation-with-germany"
    }
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    "Published: July 10, 2019",
    "After several years of real GDP growth averaging over 2 percent annually, Germany’s economy slowed sharply in the second half of 2018, reflecting a slowdown in global demand and temporary disruptions affecting the auto and chemical industries.",
    "Real GDP growth reduced to 1.5 percent in 2018.",
    "Unemployment hit a new record low, pushing wage growth up above 3 percent.",
    "Investment remained strong.",
    "Core inflation was 1.6 percent by the end of 2018.",
    "The general government recorded a fiscal surplus of 1.7 percent of GDP in 2018 — its fifth consecutive year of fiscal surplus and its largest in nearly 30 years.",
    "The current account surplus declined to 7.3 percent of GDP (down from 8.0 percent in 2017), reflecting a narrowing of the goods trade balance.",
    "Credit grew broadly in line with GDP in 2018, but new lending to nonfinancial corporations was increasingly channeled to relatively riskier firms while lending standards were eased.",
    "Prices of residential and commercial real estate continued to rise rapidly, especially in dynamic urban areas.",
    "The “low-for-long” interest rate environment is putting pressure on the financial sector’s profitability, adding to the challenge of high costs and slow progress with restructuring.",
    "Outlook assumes a gradual return of output to trend in 2019, but is subject to significant uncertainty.",
    "External vulnerability and downside scenarios:",
    "Medium-term headwinds: unfavorable demographics, low productivity growth, and the impending energy transition expected to weigh on growth.",
    "Directors commended the German authorities for skillful economic management that underpinned growth, strengthened the fiscal position, and reduced unemployment to a historically low level.",
    "Directors noted the recent economic slowdown and downside risks that weigh on growth prospects.",
    "Long-term challenges highlighted: unfavorable demographics and weak productivity growth, as well as external risks from trade tensions and the Brexit process.",
    "Need to address external imbalances and ensure benefits of strong economic performance are broadly shared.",
    "Fiscal policy and public investment:",
    "Taxation and international cooperation:",
    "Structural reforms and productivity:",
    "Energy and environment:",
    "Financial sector and macroprudential policy:",
    "Governance and anti-corruption:",
    "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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