This paper discusses the economic performance of Germany. The economy of Germany is projected to slowly rebalance, with domestic demand supported by tight labor market, accommodative monetary conditions, and, in 2016, a fiscal expansion. Declining medium-term growth prospects, however, continue to hold back domestic investment and push up savings, preventing faster rebalancing. Progress has been slow on addressing needs in public infrastructure and stimulating competition in services sector, while mounting aging costs and a successful labor market integration of women and refugees require further policy action. Full use of the room available under fiscal rules to finance additional public investment and growth-friendly structural reforms would be appropriate.

Abstract

This paper discusses the economic performance of Germany. The economy of Germany is projected to slowly rebalance, with domestic demand supported by tight labor market, accommodative monetary conditions, and, in 2016, a fiscal expansion. Declining medium-term growth prospects, however, continue to hold back domestic investment and push up savings, preventing faster rebalancing. Progress has been slow on addressing needs in public infrastructure and stimulating competition in services sector, while mounting aging costs and a successful labor market integration of women and refugees require further policy action. Full use of the room available under fiscal rules to finance additional public investment and growth-friendly structural reforms would be appropriate.

Fund Relations

(As of May 31, 2016; unless specified otherwise)

Mission: April 27–May 9, 2016 in Berlin, Bonn, Frankfurt, and Nuremberg. The concluding statement of the mission is available at http://www.imf.org/external/np/ms/2016/050916.htm.

Staff team: Ms. Detragiache (Head), Ms. Pereira, Messrs. Natal, Vandenbussche, and Xie (all EUR).

Country interlocutors: Parliamentary State Secretary Spahn, Bundesbank President Weidmann, senior representatives at the Chancellery, the Ministry of Finance, the Ministry of Economic Affairs and Energy, the Ministry of Labor, the Ministry of Transport and Digital Infrastructure, the Ministry for the Environment, the Bundesbank, and the Federal Office for Migration and Refugees. Mr. Meyer, Executive Director, also participated in the discussions. Additional meetings took place with industry, think tanks, trade unions, and financial market participants, as well as academics.

Fund relations: The previous Article IV consultation discussions took place during April–May 2015 and the staff report was discussed by the Executive Board on July 10, 2015. The Executive Board’s assessment and staff report are available at http://www.imf.org/external/pubs/cat/longres.aspx?sk=43082.0.

Membership Status: Joined August 14, 1952; Article VIII.

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans: None

Financial Arrangements: None

Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs, as of May 31, 2015):

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1/ When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Exchange Rate Arrangement

Germany’s currency is the euro, which floats freely and independently against other currencies.

Germany is an Article VIII member and maintains an exchange system free of restrictions on payments and transfers for current international transactions. It maintains measures adopted for security reasons, which have been notified to the Fund for approval in accordance with the procedures of Decision 144 and does so solely for the preservation of national or international security.

Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)

Germany was last assessed against the previous AML/CFT standard in 2009. Some shortcomings were identified inter alia with respect to the money laundering (ML) and terrorist financing (TF) offenses, and AML/CFT preventive measures (including the reporting of suspicious transaction requirements, and customer due diligence, CDD, requirements). In recent years, Germany has introduced significant reforms to enhance its AML/CFT regime. It notably criminalized self-laundering and immobilized bearer shares, enhanced domestic cooperation, and improved the supervisory framework for designated non-financial business and professions (DNFBPs) and the risk analysis model applied by BaFin for AML/CFT supervision. Onsite visits to financial institutions and DNFBPs have increased. Germany is currently conducting a national assessment of its ML and TF risks.

Overall, the AML/CFT framework appears strong, but some weaknesses remain. Amongst others, Germany should consider expanding the range of predicate offenses to ML to include offenses—in particular serious tax offenses—not only when aggravating circumstances are met but also in their absence, when the offenses generate significant amounts of proceeds. Germany should also enhance AML/CFT supervision of banks with cross-border operations and as priority, should give additional attention to the supervision and audit review of banks’ risk assessments and applicable control measure, enhance information flow and cooperation between BaFin, ECB and the Bundesbank on AML/CFT issues and increase staffing. Finally, Germany should take further measures to facilitate timely access to beneficial ownership information of legal persons.

The next assessment of Germany’s AML/CFT framework is tentatively scheduled to take place in 2021.

Statistical Issues

(AS OF MAY 24,2016)

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Germany: Table of Common Indicators Required for Surveillance

(As May 24, 2016)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Pertains to contribution to EMU aggregate.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition

Includes external gross financial asset and liability positions vis-a-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA)

Reflects the assessment provided in the data ROSC (published on January 18, 2006, and based on the findings of the mission that took place during July 5–20, 2005) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning methodological soundness, namely, (i) concepts and definitions, (ii) scope, (iii) classification/sectorization, and (iv) basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 9, except referring to international standards concerning accuracy and reliability, namely, (i) source data, (ii) assessment of source data, (iii) statistical techniques, (iv) assessment and validation of intermediate data and statistical outputs, and (v) revision studies.

Germany: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany
Author: International Monetary Fund. European Dept.