IMF Executive Board Concludes 2022 Article IV Consultation with Germany
IMF News, July 20, 2022
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- Published: July 20, 2022
Economic outlook and risks
- Real GDP growth: 2.9 percent in 2021; projected 1.2 percent in 2022 and 0.8 percent in 2023.
- Total domestic demand growth: -4.0 percent in 2020; 2.3 percent in 2021; 2.2 percent in 2022; 0.7 percent in 2023.
- Output gap: -3.6 percent of potential GDP in 2020; -1.6 percent in 2021; -1.2 percent in 2022.
- Inflation (headline, period avg.): 0.4 percent in 2020; 3.2 percent in 2021; 7.7 percent in 2022; 4.8 percent in 2023.
- Inflation pressures: Surging energy costs are reducing the current account surplus and feeding into broad-based price pressures.
- Key downside risks: persistent shut-off of the remaining Russian gas exports to Europe; prolonged war; resurging COVID-19 infections; tighter global monetary policy leading to sharp tightening in financial conditions and corrections in asset prices.
- Medium-term risks: fragmentation of global supply chains compounding decarbonization, population aging, infrastructure gaps, and digitalization challenges.
Fiscal stance, energy policy, and public finances
- Fiscal balance (% of GDP): -4.3 in 2020; -3.7 in 2021; -3.2 projected in 2022; -1.8 projected in 2023.
- Revenue (% of GDP): 46.5 in 2020; 47.9 in 2021; 47.1 projected in 2022; 46.9 projected in 2023.
- Expenditure (% of GDP): 50.8 in 2020; 51.6 in 2021; 50.2 projected in 2022; 48.7 projected in 2023.
- Public debt (% of GDP): 68.7 in 2020; 70.2 in 2021; 70.9 projected in 2022; 68.9 projected in 2023.
- Policy responses to energy shock: expanding income support for vulnerable households; cutting fuel taxes; providing liquidity support to firms; diversification away from Russian oil, coal, and gas; establishing facilities to re-gasify liquified natural gas; requiring operators to fill gas storage tanks before the winter.
- Fiscal framework: COVID-19 relief measures are being phased out; the debt brake rule is set to resume in 2023; extrabudgetary funds created for increased climate- and defense-related spending that are not bound by the debt brake rule.
- Board guidance: maintain flexibility, recalibrate near-term fiscal plans if downside risks materialize, allow automatic stabilizers to operate fully, consider activating the escape clause of the debt brake rule for another year if needed.
Financial sector resilience and FSAP findings
- Overall assessment: the financial sector has so far been limitedly affected by the war; banks remain largely resilient to solvency and liquidity shocks.
- FSAP and FSSA: publication of the Staff Report and Financial System Stability Assessment bundles will be followed by publication of the FSAP Technical Notes underpinning the FSSA.
- Recent supervisory progress: authorities strengthened microprudential frameworks for banking and insurance, resolution planning, and crisis preparedness.
- Vulnerabilities identified: low bank profitability; stress tests show shortfalls of capital and US dollar liquidity at some individual banks under adverse scenarios; stretched house price valuations and loose lending standards in certain segments.
- Macroprudential stance: institutions well developed; authorities tightened macroprudential policy in 2022; recommended additions include income-based measures and expedited closure of data gaps.
- Supervisory recommendations: continue close monitoring of banks’ balance sheets; strengthen banks’ capital buffers as needed; further strengthen BaFin’s operational independence and aspects of the supervisory framework; consider reviewing the design of the fragmented deposit insurance system; consider activation of borrower-based instruments where appropriate; continue strengthening the AML/CFT framework.
Executive Board assessment and policy recommendations
- Growth and inflation view: Directors noted muted growth in coming quarters and elevated inflation reflecting pass-through of higher natural gas prices.
- Support measures: Directors encouraged targeted and time-bound support for vulnerable households and supported temporary subsidies for firms’ energy bills seen by a few Directors.
- Energy price pass-through: generally recommended allowing higher international gas prices to pass through to end-users to incentivize energy savings and facilitate gas inventory build-up.
- Structural and investment priorities: welcomed ambitious decarbonization plans and digitalization and transportation infrastructure push; encouraged enhancing energy security, digitalization, innovation, labor supply and training, and social protection; improving economic opportunities for women and migrants.
- Public investment: stressed boosting green public investment to tackle network externalities and crowd-in private investments in clean technologies; urged overcoming longstanding obstacles to ramping up public investment rapidly and decisively.
- Fiscal credibility: stressed that structural increases in spending for strategic priorities should be integrated into the core budget over time to maintain credibility of Germany’s fiscal framework.
- Financial sector follow-up: Directors broadly supported FSAP recommendations and urged continued vigilance given pockets of vulnerability and structurally low bank profitability.
Key statistics (Germany: Selected Economic Indicators, 2020–23)
- Output
- Real GDP growth (%): -4.6 (2020); 2.9 (2021); 1.2 (2022); 0.8 (2023).
- Total domestic demand growth (%): -4.0 (2020); 2.3 (2021); 2.2 (2022); 0.7 (2023).
- Output gap (% of potential GDP): -3.6 (2020); -1.6 (2021); -1.2 (2022).
- Employment
- Unemployment rate (%, ILO): 3.8 (2020); 3.6 (2021); 3.1 (2022); 3.4 (2023).
- Employment growth (%): -1.0 (2020); -0.7 (2021); 1.6 (2022); -0.2 (2023).
- Prices
- Inflation (%, headline, period avg.): 0.4 (2020); 3.2 (2021); 7.7 (2022); 4.8 (2023).
- Inflation (%, core, period avg.): 4.0 (2020); 3.9 (2021).
- General Government Finances
- Fiscal balance (% of GDP): -4.3 (2020); -3.7 (2021); -3.2 (2022); -1.8 (2023).
- Revenue (% of GDP): 46.5 (2020); 47.9 (2021); 47.1 (2022); 46.9 (2023).
- Expenditure (% of GDP): 50.8 (2020); 51.6 (2021); 50.2 (2022); 48.7 (2023).
- Public debt (% of GDP): 68.7 (2020); 70.2 (2021); 70.9 (2022); 68.9 (2023).
- Money and Credit
- Broad money (M3) (end of year, % change) 1/: 8.2 (2020); 5.6 (2021).
- Credit to private sector (% change): 4.9 (2020); 5.4 (2021).
- 10-year government bond yield (%): -0.5 (2020); -0.3 (2021).
- Balance of Payments
- Current account balance (% of GDP): 7.1 (2020); 7.4 (2021); 5.7 (2022); 6.2 (2023).
- Trade balance (% of GDP): 4.4 (2020).
- Exports of goods (% of GDP): 35.2 (2020); 38.3 (2021); 37.5 (2022); 37.6 (2023).
- Volume (% change): -9.0 (2020); 10.0 (2021); 1.9 (2022); 4.2 (2023).
- Imports of goods (% of GDP): 29.6 (2020); 32.9 (2021); 33.7 (2022); 33.0 (2023).
- Volume (% change): -5.3 (2020); 8.0 (2021); 1.5 (2022).
- FDI balance (% of GDP): -0.1 (2020).
- Reserves minus gold (billions of US$): 64.0 (2020); 99.2 (2021).
- External Debt (% of GDP): 165.1 (2020); 171.8 (2021).
- Exchange Rate
- REER (% change): 1.3 (2020); 0.9 (2021).
- NEER (% change): 2.4 (2020).
- Real effective rate (2005=100) 2/: 96.7 (2020); 97.6 (2021).
- Nominal effective rate (2005=100) 3/: 103.8 (2020); 104.7 (2021).
IMF Executive Board Concludes 2022 Article IV Consultation with Germany (Press Release No. 22/268), July 20, 2022.