## IMF Executive Board Concludes 2021 Article IV Consultation with Germany

_IMF News, July 15, 2021_

## Source details

**Canonical URL:** [IMF Executive Board Concludes 2021 Article IV Consultation with Germany](https://www.imf.org/en/news/articles/2021/07/14/pr21216-germany-imf-executive-board-concludes-2021-article-iv-consultation)

## Other formats

- [Markdown version](/en/news/articles/2021/07/14/pr21216-germany-imf-executive-board-concludes-2021-article-iv-consultation/index.md)
- [Structured JSON version](/en/news/articles/2021/07/14/pr21216-germany-imf-executive-board-concludes-2021-article-iv-consultation/index.json)
- [Bundle manifest](/en/news/articles/2021/07/14/pr21216-germany-imf-executive-board-concludes-2021-article-iv-consultation/bundle-manifest.json)

## Bibliographic details
- Published: July 15, 2021

---

### Overview and recent developments
- On July 14, 2021, the IMF Executive Board concluded the Article IV consultation with Germany.
- The economy contracted by 4.8 percent in 2020.
- New waves of infections with more transmissible variants and associated lockdown measures, compounded by supply-side shortages, caused economic activity to contract again at the beginning of 2021.
- Mass vaccinations were slow to start but have strongly gathered pace.
- In 2020, Germany recorded its first fiscal deficit in eight years, reflecting unprecedented policy support to combat the pandemic.
- The current account surplus narrowed slightly relative to 2019, with the contraction in the goods trade balance largely offset by a commensurate decline in the services deficit and lower oil prices.

### Fiscal, monetary, and financial policy stance
- Fiscal and financial policies remain appropriately accommodative.
- Most measures supporting households and firms have been extended through 2021, enabled by the continued activation of the escape clause to the debt brake rule.
- The expansion of short-time work benefits (Kurzarbeit) has played a crucial role in preserving jobs and supporting domestic demand.
- Following a brief spike at the onset of the pandemic, credit growth eased through the remainder of 2020.
- German banks have so far weathered the COVID-19 shock relatively well, aided by fiscal support measures and insolvency moratoria, with business and household insolvencies remaining subdued.
- Risks: gradual unwinding of policy support could lead to rises in loan impairments and provisioning requirements; large segments of the banking sector still struggle with persistently low profitability.

### Outlook and risks
- Staff expect growth to gather strength as vaccination becomes widely available and the economy fully reopens.
- The outlook remains highly uncertain, with further infection waves and mobility restrictions comprising the chief source of risks.
- Over the medium term, structural changes ushered in by the pandemic could compound longstanding challenges related to population aging, infrastructure gaps, digitalization, and the green energy transition.

### Executive Board Assessment and policy recommendations
- Directors commended the authorities for decisive policy actions enabled by Germany’s ample fiscal space and global efforts via the COVAX initiative.
- Directors noted that a robust recovery is expected in the second half of 2021 as mass vaccinations gather strength, although large uncertainties remain.
- Fiscal policy recommendations:
  - Fiscal policy should remain supportive until there is clear evidence of a sustained recovery.
  - Frontload public investment to facilitate post-crisis resource reallocation and lift potential growth.
  - Carefully calibrate withdrawal of fiscal support and accompany it with well-targeted measures.
  - Use fiscal space to scale up public investment to lift potential growth, facilitate structural transformation, and help address large external imbalances.
- Labor market and inclusion recommendations:
  - Note merits of Kurzarbeit to contain unemployment and support aggregate demand.
  - Implement additional measures targeted at groups hard hit by the pandemic and not covered by Kurzarbeit to prevent widening inequality and deeper labor market scarring.
- Structural reform and climate/digital transition:
  - Support authorities’ structural reform agenda to boost potential growth and support a green and digital transformation.
  - Welcome Germany’s strong commitment to fighting climate change and further enhancing the multi-pronged climate action plan.
  - A well-specified schedule of carbon prices over a longer-term horizon would enhance efficiency.
  - Accelerate the expansion of high-speed broadband networks, increase support for R&D, promote further venture capital, and improve the business environment.
- Financial stability and banking sector:
  - Safeguard financial stability during the nascent recovery.
  - In light of risk of rising bankruptcies as support measures are phased out, recommend continued targeted liquidity and solvency support for viable firms.
  - Banks need to improve cost structures to address chronic low profitability.
  - Monitor closely the buildup of financial vulnerabilities in real estate markets.
  - Directors look forward to recommendations from the ongoing 2022 FSAP.

### Selected economic indicators and projections (2019–22)
- Real GDP growth (%) — 2019: 0.6; 2020: -4.8; 2021: 3.6; 2022: 4.1
- Total domestic demand growth (%) — 2019: 1.2; 2020: -4.1; 2021: 3.1; 2022: 4.6
- Output gap (% of potential GDP) — 2019: 0.4; 2020: -2.9; 2021: -2.1; 2022: -0.3
- Unemployment rate (%, ILO) — 2019: 3.2; 2020: 4.2; 2021: 3.7
- Employment growth (%) — 2019: 0.3; 2020: 0.5
- Inflation (%, headline) — 2019: 1.4; 2020: 2.6
- Inflation (%, core) — 2019: 0.9; 2020: 2.1; 2021: 1.5
- Fiscal balance (% of GDP) — 2019: -4.2; 2020: -7.2; 2021: -1.8
- Revenue (% of GDP) — 2019: 46.7; 2020: 46.8; 2021: 46.2; 2022: 46.3
- Expenditure (% of GDP) — 2019: 45.2; 2020: 51.1; 2021: 53.2; 2022: 47.9
- Public debt (% of GDP) — 2019: 59.7; 2020: 69.7; 2021: 73.0; 2022: 70.9
- Broad money (M3) (end of year, % change) — 2019: 8.2
- Credit to private sector (% change) — 2019: 5.4; 2020: 4.9
- 10-year government bond yield (%) — 2019: -0.2; 2020: -0.5
- Current account balance (% of GDP) — 2019: 7.5; 2020: 7.0; 2021: 7.4; 2022: 7.3
- Trade balance (% of GDP) — 2019: 5.7; 2020: 6.0; 2021: 5.9
- Exports of goods (% of GDP) — 2019: 37.8; 2020: 35.7; 2021: 37.9; 2022: 37.5
- Exports of goods (Volume % change) — 2020: -9.0; 2021: 11.6
- Imports of goods (% of GDP) — 2019: 31.5; 2020: 30.0; 2021: 31.1
- Imports of goods (Volume % change) — 2020: 2.5; 2021: -5.4; 2022: 10.1
- FDI balance (% of GDP) — 2019: 2.2; 2020: 0.0; 2021: 1.0
- Reserves minus gold (billions of US$) — 2019: 59.2; 2020: 64.0
- External Debt (% of GDP) — 2019: 145.1; 2020: 165.2
- REER (% change) — 2019: -1.6; 2020: 1.3
- NEER (% change) — 2019: -1.0; 2020: 2.4
- Real effective rate (2005=100) — 2019: 95.4; 2020: 96.7
- Nominal effective rate (2005=100) — 2019: 101.4; 2020: 103.8

*IMF Executive Board Concludes 2021 Article IV Consultation with Germany (Press Release No. 21/216).*

---


## References

- [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)

_Source: https://www.imf.org/en/news/articles/2021/07/14/pr21216-germany-imf-executive-board-concludes-2021-article-iv-consultation_