FOR IMMEDIATE RELEASE
Washington, DC – January 19, 2021: On January 13, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Germany.
Germany entered the COVID-19 crisis with favorable economic conditions, supported by strong domestic demand on the back of record low unemployment and robust wage growth. Consecutive fiscal surpluses had brought public debt down to under 60 percent of GDP. The current account surplus had narrowed slightly to 7.1 percent in 2019, and private balance sheets were strong, although large segments of the banking sector were struggling with persistently low profitability.
The COVID-19 pandemic caused an unprecedented economic contraction of 11.5 percent in the first half of 2020, due to domestic containment measures and a sharp, synchronized global slowdown. Nonetheless, thanks to a successful initial public health response and strong macroeconomic policy support, the economy has proved more resilient than in many peers. The multi-pronged fiscal measures amount to more than 10 percent of GDP over 2020–2021, and together with the expansion of public guarantees, make up one of the largest fiscal packages in Europe. The expansion of short-time work benefits (“Kurzarbeit”) played a vital role in preserving jobs and supporting household income. Prompt action by the European and German authorities has also sustained the flow of credit, and together with various borrower support measures and tax deferrals, has provided much needed liquidity to affected firms. The pandemic exerted renewed downward pressure on inflation, which slowed sharply since the onset of the crisis, entering negative territory in the summer on the back of falling energy prices, a VAT cut, and slowing aggregate demand. The current account surplus has been narrowing further through 2020, reflecting a large but likely temporary fall in the goods trade balance.
Staff envisage a choppy economic recovery, unevenly distributed across sectors, and with quarterly swings conditioned by volatile infection dynamics through early 2021. The recovery should firm up once there is wide distribution of effective vaccines, but output is not expected to return to its pre-crisis level until 2022. The baseline projection is subject to unusually large uncertainty, with risks tilted to the downside as resurgent infection waves may trigger renewed or prolonged lockdowns and deepen economic scarring. The country’s export dependence and financial openness also make it vulnerable to shocks to external demand. Over the medium term, longstanding challenges related to population aging, infrastructure gaps and an impending green energy transition will be compounded by structural changes ushered in by the pandemic.
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.