## IMF Executive Board Concludes 2022 Article IV Consultation with Germany

_IMF News, July 20, 2022_

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## Bibliographic details
- Published: July 20, 2022

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### 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.*

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## References

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_Source: https://www.imf.org/en/news/articles/2022/07/19/pr22268-germany-imf-executive-board-concludes-2022-article-iv-consultation-with-germany_