{
  "title": "IMF Executive Board Concludes 2024 Article IV Consultation with Germany",
  "publication": "IMF News, July 18, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/07/18/pr-24280-germany-imf-executive-board-concludes-2024-article-iv-consultation-with-germany",
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  "summary": "IMF Executive Board Concludes 2024 Article IV Consultation with Germany",
  "publishDate": "2024-07-18",
  "sections": [
    {
      "heading": "Macroeconomic overview and recent developments",
      "content": "- The German economy has begun to recover from the energy-price shock.\n- High energy prices arising from the shut-off of Russian gas contributed to surging inflation during 2022–23 and weighed on economic activity.\n- The impact of the shock was greatly mitigated by a strong policy response, including provision of income support while preserving incentives to conserve energy.\n- Conservation efforts and steps to secure new energy supplies have helped return wholesale gas prices to more normal levels.\n- Lower energy prices and monetary tightening have spurred rapid disinflation.\n- Real wages are now growing, and the economy expanded in the first quarter of 2024."
    },
    {
      "heading": "Outlook and projections",
      "content": "- Gradual economic recovery is expected to continue in 2024.\n- Wage growth now exceeding inflation is expected to drive private consumption during 2024.\n- A return to growth is expected to reinforce confidence and, alongside a gradual easing of monetary policy, bolster consumption and investment in 2025.\n- Inflation dynamics:\n  - Lower energy prices are expected to continue passing through to retail prices, leading to slower overall inflation.\n  - Core inflation is expected to remain somewhat above headline inflation due to robust wage growth.\n- Medium-term constraints:\n  - Rapid population aging is expected to slow GDP growth to below 1 percent absent significant increases in productivity or much higher-than-expected immigration.\n  - Rapid population aging is also expected to significantly increase pension and healthcare costs."
    },
    {
      "heading": "Risks to the outlook",
      "content": "- Risks are broadly balanced.\n- Upside risk:\n  - Positive economic news could spur a faster-than-expected recovery in consumption and investment.\n- Key downside risks:\n  - Accelerating geoeconomic fragmentation.\n  - Worsening global conflicts.\n  - Intensifying stress in global commercial real estate (CRE) markets.\n  - Uncertainty about the pace of disinflation poses risks in both directions."
    },
    {
      "heading": "Executive Board assessment and policy guidance",
      "content": "- Directors commended the authorities for:\n  - Strong economic fundamentals.\n  - Strong policy response to the energy-price shock that greatly mitigated its impact.\n  - The gradual economic recovery and decline of inflation toward target levels.\n- Structural reform priorities to strengthen potential growth:\n  - Boost investment, productivity, and labor supply.\n  - Continue efforts to cut red tape, promote digitalization and innovation, and deepen the European single market, including progressing towards a Capital Markets Union.\n  - Strengthen labor supply by enhancing integration of immigrants and further promoting women’s full-time labor market participation.\n  - Expand access to childcare and eldercare services and reduce the effective marginal tax rate on second earners.\n- Fiscal policy guidance:\n  - Directors commended plans to fully use flexibility within fiscal rules to avoid an overly tight near-term fiscal stance.\n  - Emphasized further increases in public investment to upgrade infrastructure in transport, energy, communications, and other critical areas.\n  - Noted higher public investment would help external rebalancing, raise productivity and potential growth, and support green and digital transitions.\n  - To create further fiscal room given rising spending pressures related to aging and defense, Directors suggested:\n    - Pension reforms.\n    - Reducing environmentally harmful subsidies.\n    - Other revenue and expenditure measures.\n  - Improving public investment execution is needed.\n  - Most Directors concurred that a moderate easing of the debt brake could create additional fiscal room without endangering debt sustainability; some Directors noted the debt brake is constitutionally binding and changes need careful consideration."
    },
    {
      "heading": "Financial sector, AML/CFT, and resilience",
      "content": "- Directors noted Germany’s banking and insurance systems remain resilient, with strong capital and liquidity positions.\n- Encouraged continued vigilance in monitoring and addressing elevated risks in banks’ commercial real estate exposures.\n- Welcomed efforts to strengthen the AML/CFT framework, including:\n  - Establishing a new federal financial crime agency.\n  - Improving data quality in the beneficial ownership transparency registry.\n- Encouraged continued progress in implementing the 2022 FSAP recommendations."
    },
    {
      "heading": "Climate, energy, and external policy",
      "content": "- Directors commended Germany for leadership in the climate agenda.\n- Welcomed recent measures to streamline approval processes for solar and onshore wind projects.\n- Underscored that additional efforts are needed to meet Germany’s ambitious climate targets, including in the deployment of renewable power.\n- Commended Germany’s leadership in multilateral cooperation and strong support for free trade policies and the multilateral rules-based trading system."
    },
    {
      "heading": "Germany: Selected Economic Indicators, 2023–25 (projections)",
      "content": "- Output\n  - Real GDP growth (%): 2023: -0.2; 2024: 0.2; 2025: 1.3\n  - Total domestic demand growth (%): 2023: -1.1; 2024: 1.2\n  - Output gap (% of potential GDP): 2023: -0.3; 2024: -1.0; 2025: -0.7\n- Employment\n  - Unemployment rate (%, ILO): 2023: 3.0; 2024: 3.3; 2025: 3.1\n  - Employment growth (%): 2023: 1.1; 2024: 0.0\n- Prices\n  - Inflation (%, headline, period avg.): 2023: 6.0; 2024: 2.5; 2025: 2.2\n  - Inflation (%, core, period avg.): 2023: 6.3; 2024: 2.3\n- General Government Finances\n  - Fiscal balance (% of GDP): 2023: -2.4; 2024: -1.7; 2025: -1.3\n  - Revenue (% of GDP): 2023: 46.2; 2024: 46.3; 2025: 46.8\n  - Expenditure (% of GDP): 2023: 48.6; 2024: 48.0; 2025: 48.1\n  - Cyclically adjusted balance (% of GDP): 2023: -2.3; 2024: -1.2; 2025: -0.9\n  - Public debt (% of GDP): 2023: 63.6; 2024: 63.8; 2025: 62.4\n- Money and Credit\n  - Broad money (M3) (end of year, % change) 2: 2023: 0.4; 2024: …\n  - Credit to private sector (% change): 2023: -5.0\n  - 10-year government bond yield (%): 2023: 2.6\n- Balance of Payments\n  - Current account balance (% of GDP): 2023: 4.3; 2024: 4.4; 2025: 4.2\n  - Trade balance (% of GDP): 2023: 38.0 (Exports of goods % of GDP); 2024: 36.9; 2025: 36.3\n  - Volume (% change) (exports of goods): 2023: 2.4; 2024: 3.2\n  - Imports of goods (% of GDP): 2023: 32.1; 2024: 31.0; 2025: 30.8\n  - Service trade balance (% of GDP): 2023: -1.5\n  - FDI balance (% of GDP): 2023: 1.4\n  - Reserves minus gold (billions of US$): 2023: 100.4\n  - External Debt (% of GDP): 2023: 148.1\n- Exchange Rate\n  - REER (% change): 2023: 3.4\n  - NEER (% change): (value not separately provided)\n  - Real effective rate (2010=100) 3: 2023: 96.7\n  - Nominal effective rate (2010=100) 4: 2023: 105.9\n\nItalic: IMF Communications Department, Press Release No. 24/280; Executive Board conclusions of the 2024 Article IV consultation with Germany.\n\n---\n\n\n References\n\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/2024/07/18/pr-24280-germany-imf-executive-board-concludes-2024-article-iv-consultation-with-germany"
    }
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    "Published: July 18, 2024",
    "The German economy has begun to recover from the energy-price shock.",
    "High energy prices arising from the shut-off of Russian gas contributed to surging inflation during 2022–23 and weighed on economic activity.",
    "The impact of the shock was greatly mitigated by a strong policy response, including provision of income support while preserving incentives to conserve energy.",
    "Conservation efforts and steps to secure new energy supplies have helped return wholesale gas prices to more normal levels.",
    "Lower energy prices and monetary tightening have spurred rapid disinflation.",
    "Real wages are now growing, and the economy expanded in the first quarter of 2024.",
    "Gradual economic recovery is expected to continue in 2024.",
    "Wage growth now exceeding inflation is expected to drive private consumption during 2024.",
    "A return to growth is expected to reinforce confidence and, alongside a gradual easing of monetary policy, bolster consumption and investment in 2025.",
    "Inflation dynamics:",
    "Medium-term constraints:",
    "Risks are broadly balanced.",
    "Upside risk:",
    "Key downside risks:",
    "Directors commended the authorities for:",
    "Structural reform priorities to strengthen potential growth:",
    "Fiscal policy guidance:",
    "Directors noted Germany’s banking and insurance systems remain resilient, with strong capital and liquidity positions.",
    "Encouraged continued vigilance in monitoring and addressing elevated risks in banks’ commercial real estate exposures.",
    "Welcomed efforts to strengthen the AML/CFT framework, including:",
    "Encouraged continued progress in implementing the 2022 FSAP recommendations.",
    "Directors commended Germany for leadership in the climate agenda.",
    "Welcomed recent measures to streamline approval processes for solar and onshore wind projects.",
    "Underscored that additional efforts are needed to meet Germany’s ambitious climate targets, including in the deployment of renewable power.",
    "Commended Germany’s leadership in multilateral cooperation and strong support for free trade policies and the multilateral rules-based trading system.",
    "Output",
    "Employment",
    "Prices",
    "General Government Finances",
    "Money and Credit",
    "Balance of Payments",
    "Exchange Rate",
    "[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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