Europe’s biggest economy is expected to grow by 1.6 percent this year and 1.7 percent next year. “Boosting public investment, women’s employment, and competition in the services sector now would help face the challenges that loom further ahead,” said Enrica Detragiache, IMF mission chief for Germany.
In the annual review of the German economy, the IMF noted that following an unexpected slowdown in mid 2014, GDP picked up in the last quarter of the year. Higher real wages lifted real disposable income and domestic demand, while a weaker euro helped strengthen exports despite slipping growth in emerging markets. Furthermore the labor market remained strong.
“There is a moderate expansion under way in Germany but possible risks coming from the external environment should not be underestimated,” Detragiache said.
Current account surplus growing
Germany’s current account surplus reached 7.6 percent of GDP last year. It was the largest in the world in U.S. dollar terms, and will likely grow further this year.
To accompany the main report, the IMF has published a “Selected Issues” paper that examines Germany’s sustained current account surplus. In an international and historical context, a key feature of the ongoing current account surplus is the weak domestic demand, particularly private investment, that accompanies it.
The report also investigates what higher wages in Germany could mean domestically and for the euro area. It concludes that higher wages could help raise GDP and generate positive benefits regionally when they are brought about by an expansion in consumption or investment.
Larger doses of public investment needed
Authorities plan a balanced budget at federal level until 2017 and beyond, and small surpluses for the general government. Public debt is on track to fall below 60 percent of GDP by 2020, according to the report.
The German government has stepped up plans to increase public investment, including a fund to help municipalities with less financial firepower. Further investments will be made in public transport, digital infrastructure and energy efficiency. While these are welcome, Germany’s overall public investment plans fall short of the 2 percent...