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IMF Country Report No. 18/208
GERMANY
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR GERMANY
July 2018
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 2018 Article IV consultation with Germany, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its June 29, 2018 consideration of the staff report that concluded the Article IV consultation with Germany.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 29, 2018 following discussions that ended on May 14, 2018, 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 15, 2018.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Germany.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2018 International Monetary Fund
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GERMANY
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION
June 15, 2018
Key Issues
The Germany economy has performed very well in recent years, supported by prudent economic management and past structural reforms. Growth is robust, employment is rising, and the unemployment rate has fallen to levels not seen in decades. Inflation remains low but wage growth is picking up, reflecting the strength of the labor market. Looking beyond these positive cyclical developments, unfavorable demographics will soon weigh on potential growth and put pressure on public finances. Having already accumulated sizable buffers through savings, Germany should now prioritize domestic investment in physical and human capital to prepare for the future. The new government’s coalition agreement contains several welcome measures in this direction, but more forceful actions to boost labor supply and increase labor productivity would help stimulate domestic investment and reduce Germany’s large current account surplus.
Key policy recommendations
Fully use the ample available space within the fiscal rules to enhance the growth potential of the economy by further increasing public investment in physical and human capital and fostering labor supply.
Reinvigorate competition-enhancing reforms in network industries and professional services and enhance the environment for entrepreneurship and venture capital. This would help boost productivity growth and further spur private domestic investment.
Consider pension and labor market reforms to lengthen working lives, which would increase labor force participation of older workers, reduce aging-related fiscal pressures, mitigate the need for workers to save as much for retirement, and lower risks of old-age poverty.
Complete the toolkit for managing financial stability risks and urgently address data gaps. For banks and insurance companies, continued supervisory attention to interest rate risk and restructuring plans remains appropriate.
Approved By
Enrica Detragiache (EUR) and Tamim Bayoumi (SPR)
Discussions took place in Berlin, Bonn, Frankfurt, and Nuremberg during May 2–14. The staff team comprised Ms. Kozack (head), Mses. Chen, Mineshima, and Pereira, Mr. Natal (all EUR), and Mr. Kemoe (STA). The team was supported from headquarters by Ms. Ordonez-Baric and Mr. Musayev (both EUR). Mr. Merk (OED) participated in the discussions. The mission met with State Secretary of the Federal Ministry of Finance Schmidt, Bundesbank President Weidmann, officials from the Federal Chancellor’s office, the Finance, Economic Affairs, Labor, and Environment Ministries, the Bundesbank, the Federal Office for Migration and Refugees, representatives from the social partners, the banking and insurance sectors, think tanks, and academics.
Contents
IMPRESSIVE RECENT ECONOMIC PERFORMANCE
SOLID EXPANSION IN NEAR-TERM; LOOMING MEDIUM-TERM CHALLENGES
POLICY DISCUSSIONS
A. An Opportunity to Address Challenges and Support Rebalancing
B. Investing in Physical and Human Capital
C. Increasing Labor Supply
D. Boosting Productivity Growth and Private Investment
E. Housing Market: Preventing Financial Excesses
F. Financial Sector Policies: Shoring up Profitability and Monitoring Risks
STAFF APPRAISAL
BOXES
1. The Evolution of the Balance of Payment’s (BoP) Financial Account
2. The New Government’s Budget Proposal
FIGURES
1. Savings by Non-Financial Corporations
2. Investment in Human Capital
3. Key Challenges to Entrepreneurship
4. Growth Developments
5. Prices and Labor Market
6. Balance of Payments
7. Fiscal Developments and Outlook
8. Credit Conditions and Asset Prices
9. Recent Developments in the German Banking Sector
10. Housing Market Developments
11. Product Market Competition, Innovation and Digitalization
TABLES
1. Selected Economic Indicators, 2015–19
2. General Government Operations, 2015–23
3. Medium Term Projections, 2015–23
4. Balance of Payments, 2015–23
5. International Investment Position, 2009–17
6. Core Financial Soundness Indicators for Banks, 2012–17
7. Additional Financial Soundness Indicators, 2012–17
ANNEXES
I. External Sector Assessment
II. Risk Assessment Matrix
III. Public Debt Sustainability Analysis
IV. Authorities’ Response to Past IMF Policy Recommendations
V. Authorities’ Response to FSAP 2016 Recommendations
VI. Puzzling Wage Developments in Germany?
VII. The Rise of German Corporate Savings
VIII. Government Investment in Germany
IX. Is There a Housing Price Bubble in Germany’s Main Cities?
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GERMANY
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
June 15, 2018
Prepared By
European Department
CONTENTS
FUND RELATIONS
STATISTICAL ISSUES
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Press Release No. 18/276
FOR IMMEDIATE RELEASE
July 5, 2018
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