On June 28, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Germany.
Germany’s growth momentum has remained solid, underpinned by robust domestic demand. In 2016, strong employment growth continued to support private consumption, while public consumption and investment in construction accelerated further. Following a soft patch for most of the year, exports and investments in equipment have rebounded in the most recent quarters. Despite high and rising capacity utilization, record low unemployment and high job vacancy rates, wage growth has remained stable and core inflation steady and low at around 1 percent. The large current account surplus declined slightly, from 8.6 percent of GDP in 2015 to 8.3 percent in 2016, due to the deterioration of the income and services balance. The fiscal policy stance was neutral, as the general government posted its third consecutive yearly surplus.
Housing prices have kept trending up especially in urban areas, against the backdrop of rising immigration, continuing urbanization, an inelastic housing supply, and easy financing conditions. Loans to non-financial corporations have accelerated as firms take advantage of low interest rates. In the banking sector, while regulatory capital is adequate, profitability continues to be weak, reflecting structural factors, some crisis legacies, and the low interest rate environment. Low interest rates, if prolonged, would also negatively affect life insurers given their extensive reliance on guaranteed products.
The cyclical upswing is expected to persist in the near term. Rising employment, some fiscal expansion and continued monetary accommodation will support domestic demand, but higher energy costs should curb consumption growth. Exports growth is expected to gradually recover from the 2016 slowdown, bringing about a pickup in business investment and imports. In all, real GDP is expected to grow by 1.8 percent in 2017 and 1.6 percent in 2018, increasing the already positive output gap and pushing up core inflation. Over the medium term, population aging and slow progress on structural reforms is expected to weigh on growth.
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.