Germany’s economic performance impressive, offers opportunity for bolder action on challenges, says IMF

Germany’s economic performance has been impressive, the International Monetary Fund (IMF) has said in its latest assessment of the European Union leading member country.

The IMF based its comments on growth rising to 2.5 percent in 2017, a growth figure that was underpinned by solid domestic demand and a rebound in exports in the second half of the year.

The IMF added that the current upswing presents a golden opportunity for bolder action to address the country’s medium-term challenges and shape a brighter future.

A six point summary by the IMF showing Germany’s outlook noted that business investment is expected to be dynamic with strong job growth and unemployment falling to new post-reunification lows, as rising wages are expected to provide a boost to private consumption while higher wage growth and stronger imports would also help bring down Germany’s large current account surplus, which stood at 8¼ percent of GDP in 2017.

The IMF noted that Germany’s public finances have improved significantly, as the budget surplus rose to 1.2 percent in 2017, the highest level since reunification and fiscal surpluses are projected to remain high over the medium term, pushing debt down to 42 percent of GDP by 2023.

The strong fiscal position can be used to increase investment in physical, digital, and human capital, and public investment in infrastructure, especially at the municipal levels, which can help crowd in private investment and support external rebalancing, the IMF said.

With Germany’s new government plans to increase investment in digital infrastructure, especially high-speed nationwide internet connections, the IMF said such plans are essential to keep Germany’s edge as an innovation leader, but cautioned that with the high probability of an average German job being lost to automation, investment in life-long learning is key to boosting productivity and long-run growth.

Also noted on the outlook was the possibility of public finances being used to boost labour force participation.

“Germany’s workforce will begin shrinking in 2020. Policies to tap into the potential of women, older workers, and migrants can help offset this decline. Expanding childcare and after-school programmes would provide greater opportunities for women to pursue full-time employment. Pension and labour market reforms that make it more attractive to stay in the workforce longer can also reduce the need to save and lift growth,” the IMF said.

The multilateral financial institution noted that fostering entrepreneurship can raise productivity, growth and investment, explaining further that Germany is an innovation leader, but with a relative weakness in venture capital. “The government should encourage the provision of scale-up capital to support startups at the growth stage. New business creation and expansion is essential for technological diffusion and productivity growth,” it said.