On July 14, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Germany.
A recovery is under way, led by domestic demand and underpinned by healthy corporate and household balance sheets, a strong labor market, a much improved fiscal position, and accommodative financial conditions. As growth returned in mid-2013, the unemployment rate reached a post-unification low, while the labor force continues to expand on the back of strong immigration and increasing participation. Headline inflation has been on a downward trend reflecting falling import prices and contained wage pressures, but core inflation has been stable around 1.2 percent. The fiscal stance in 2013 was contractionary and fiscal consolidation has put the debt-to-GDP ratio firmly on a downward path. The current account surplus reached a new high in 2013, as lower surpluses vis-à-vis the euro area periphery were offset by larger ones vis-à-vis economies outside of Europe. While credit conditions remain favorable, credit growth has been lackluster, reflecting low demand despite the upturn in the housing market.
The German banking system is downsizing and gradually strengthening. While profitability remains subdued and under pressure from persistently low interest rates, improvements in capital adequacy continued, as banks prepared to meet upcoming stricter regulatory requirements and the ECB Comprehensive Assessment got under way.
The short-term outlook is for GDP growth to gain momentum. As domestic demand growth becomes more broad-based, output should increase by 1.9 percent this year and 1.7 percent the next, and the current account surplus should begin to decline gradually. Inflation should pick up and remain above that in the rest of the euro area as the residual slack in the economy is eliminated. Growth in the medium term, however, is expected to remain constrained by the still weak and precarious international environment, lingering uncertainty (including about future energy costs), and fast approaching adverse demographic developments.
Under Article IV of the IMF–s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.