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IMF Country Report No. 14/216

GERMANY

2014 ARTICLE IV CONSULTATION—STAFF REPORT; PRESS RELEASE; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR GERMANY

July 2014

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2014 Article IV consultation with Germany, the following documents have been released and are included in this package:

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 14, 2014, following discussions that ended on May 19, 2014, with the officials of Germany on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 26, 2014.

  • An Informational Annex prepared by the IMF.

  • A Press Release summarizing the views of the Executive Board as expressed during its July 14, 2014 consideration of the staff report that concluded the Article IV consultation with Germany.

  • A Statement by the Executive Director for Germany.

The following document has been or will be separately released.

Selected Issues Paper

The publication policy for staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

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PO Box 92780 • Washington, D.C. 20090

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International Monetary Fund

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©2014 International Monetary Fund

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GERMANY

STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION

June 26, 2014

Key Issues

Context:

  • Germany fundamentals are sound: balance sheets are generally healthy, unemployment is at a historic low, and the fiscal position is strong.

  • While a recovery is underway, medium-term growth prospects are subdued and the current account surplus remains high. The economy also faces a still weak international environment, lingering uncertainty (including about future energy costs), and fast approaching adverse demographic changes.

  • Germany could do more to increase its growth, thus strengthening its role as an engine of euro area recovery.

Policy recommendations:

  • Germany has the fiscal space to finance an increase in needed public investment, particularly in the transport infrastructure. Unlike public consumption, this would durably raise German output and have measurable growth spillovers on the rest of the euro area.

  • Further reforms in services sector regulation would boost competition and productivity.

  • Greater clarity about the future energy sector regulatory framework would encourage private investment in the energy infrastructure and beyond and strengthen the outlook.

  • Decisions on the future level of the minimum wage should take into account the employment effects in certain regions.

  • Banks should keep strengthening their capital position ahead of the completion of the ECB’s Comprehensive Assessment.

  • The macroprudential framework needs to be ready as monetary conditions are set to remain accommodative for a prolonged period.

Approved By

Ranjit Teja and Kalpana Kochhar

Discussions took place in Berlin, Bonn, and Frankfurt during May 8-19. The staff team comprised Enrica Detragiache (head), Selim Elekdag, Faezeh Raei, and Jérôme Vandenbussche (all EUR). The team was supported from headquarters by Mariza Arantes and Morgan Maneely (both EUR) and Vanessa Le Leslé (SPR).

Contents

  • RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK

  • A. Recovery in the Euro Area: Germany Ahead of the Pack

  • B. Outlook and Risks: Will Domestic Demand Continue to Support Growth?

  • POLICY DISCUSSIONS

  • A. New Government, New Economic Policies

  • B. The Current Account, Investment, and Regional Spillovers

  • C. ECB Policy and the Low Interest Rates Environment

  • D. Adapting to the New Financial Regulatory and Supervisory Framework

  • E. Some Questions and Answers on Staff Analysis

  • STAFF APPRAISAL

  • BOX

  • 1. Energiewende

  • FIGURES

  • 1. Growth, Rebalancing, and Risks

  • 2. Labor Market and Prices

  • 3. Fiscal Developments and Outlook

  • 4. The Balance of Payments

  • 5. A Retrospective on Current Account and Savings-Investment Balances

  • 6. Recent Developments in the German Banking Sector

  • 7. German Credit Conditions

  • TABLES

  • 1. Selected Economic Indicators, 2008-15

  • 2. General Government Operations

  • 3. Medium-Term Projections, 2010-19

  • 4. Balance of Payments, 2009-19

  • 5. Core Financial Soundness Indicators for Banks

  • 6. Additional Financial Soundness Indicators

  • ANNEXES

  • I. Authorities’ Response to Past IMF Policy Recommendations

  • II. Main Outstanding 2011 FSAP Update Recommendations

  • III. Public Debt Sustainability Analysis

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GERMANY

STAFF REPORT FOR THE 2014 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX

June 26, 2014

Prepared By

European Department

Contents

  • FUND RELATIONS

  • STATISTICAL ISSUES

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Press Release No.14/355

FOR IMMEDIATE RELEASE

July 21, 2014

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