www.imf.org Open in urlscan Pro
2600:1415:9c00:9::1730:f7e8  Public Scan

Form analysis
0 forms found in the DOM

Text Content

 * 
 * 
 * 
 * 
 * 
 * 
 * 
 * 
 * 
 * 


 * English
   * عربي
   * 中文
   * Français
   * 日本語
   * Русский
   * Español

Clear

SearchLoading

Clear

SearchLoading

 * About
   
   
   *  * FACTSHEETS
     
      * RESOURCES
     
      * TOPICS
     
      * IMF at a Glance
      * Surveillance
      * Lending
      * Capacity Development
      * IMF Factsheets List
     
      * IMF Members
      * IMF Financial Statements
      * IMF Senior Officials
      * IMF in History
      * Archives of the IMF
      * Job Opportunities
     
      * Climate Change
      * Fintech
      * Fiscal Policies
      * Income Inequality
      * All Topics
 * Research
   
   
   *  * FLAGSHIP PUBLICATIONS
     
      * OTHER PUBLICATIONS
     
      * World Economic Outlook
      * Global Financial Stability Report
      * Fiscal Monitor
      * External Sector Report
     
      * Staff Discussion Notes
      * Working Papers
      * IMF Research Perspectives
      * Economic Review
     
      * Global Housing Watch
      * Commodity Prices
      * Commodities Data Portal
     
      * IMF Researchers
      * Annual Research Conference
      * Other IMF Events
 * Countries
   
   
   *  * IMF REPORTS AND PUBLICATIONS BY COUNTRY
     
      * 
     
      * REGIONAL OFFICES
     
      * A
      * B
      * C
      * D
      * E
      * F
      * G
      * H
      * I
      * J
      * K
      * L
      * M
      * N
      * O
      * P
      * Q
      * R
      * S
      * T
      * U
      * V
      * Y
      * Z
     
      * IMF Resident Representative Offices
      * IMF Regional Reports
      * IMF and Europe
      * IMF Members' Quotas and Voting Power, and Board of Governors
     
      * IMF Regional Office for Asia and the Pacific
      * IMF Capacity Development Office in Thailand (CDOT)
      * IMF Regional Office in Central America, Panama, and the Dominican
        Republic
      * Eastern Caribbean Currency Union (ECCU)
      * IMF Europe Office in Paris and Brussels
      * IMF Office in the Pacific Islands
 * Capacity Development
   
   *  * About Us
      * What We Do
      * How We Work
     
      * IMF Training
      * Digital Training Catalog
      * Online Learning
     
      * Our Partners
      * Country Stories
     
      * Technical Assistance Reports
      * High-Level Summary Technical Assistance Reports
      * Strategy and Policies
 * News
   
   
   *  * ALL NEWS
     
      * SEE ALSO
     
      * FOR JOURNALISTS
     
      * 
      * Country Focus
      * Chart of the Week
      * Communiqués
      * Mission Concluding Statements
      * Press Releases
     
      * Speeches
      * Statements at Donor Meetings
      * Transcripts
      * Views & Commentaries
     
      * IMFBlog
      * Article IV Consultations
      * Financial Sector Assessment Program (FSAP)
      * Seminars, Conferences, & Other Events
      * E-mail Notification
     
      * PRESS CENTER
        
        The IMF Press Center is a password-protected site for working
        journalists.
     
      * Login or Register
      * Information of interest
 * Videos
   
   *  * 
      * About the IMF
      * Conferences
      * Press briefings
      * Speeches
      * Special Features
     
      * Africa
      * Americas
      * Asia
      * Europe
      * Middle East and Central Asia
     
      * Economic Outlook
      * Annual and spring meetings
      * Capacity Development
      * Most Recent
      * Most Popular
 * Data
   
   *  * IMF Data Portal
      * World Economic Outlook Databases
      * AI Preparedness Index
      * Climate Change Indicators Dashboard
     
      * IMF Finances
      * International Financial Statistics
      * Financial Access Survey
      * Government Finance Statistics
     
      * G20 Data Gaps Initiative
      * Currency Composition of Official Foreign Exchange Reserves
      * World Revenue Longitudinal Data
 * Publications
   
   
   *  * RESOURCES
     
      * FLAGSHIPS
     
      * KEY SERIES
     
      * IMF NOTES
     
      * Publications Advanced Search
      * IMF eLibrary
      * IMF Bookstore
      * Publications Newsletter
      * Essential Reading Guides
     
      * World Economic Outlook
      * Global Financial Stability Report
      * Fiscal Monitor
      * External Sector Report
      * Regional Economic Reports
     
      * Country Reports
      * Departmental Papers
      * Policy Papers
      * Staff Discussion Notes
      * Selected Issues Papers
     
      * All Staff Notes Series
      * Analytical Notes
      * Fintech Notes
      * How-To Notes
      * Staff Climate Notes


IMF NEWS



RELATED LINKS

GERMANY AND THE IMF

IMPACT OF HIGH ENERGY PRICES ON GERMANY'S POTENTIAL OUTPUT

News

EMAIL NOTIFICATION SIGN-UP

Sign up to receive free e-mail notices when new series and/or country items are
posted on the IMF website.

Modify your profile



 * Deutsch


GERMANY’S REAL CHALLENGES ARE AGING, UNDERINVESTMENT, AND TOO MUCH RED TAPE

By Kevin Fletcher, Harri Kemp, and Galen Sher

March 27, 2024



Germany faces some serious economic challenges, but they aren’t necessarily the
ones getting the most attention. Solving these challenges requires ambitious
reforms

Germany is struggling. It was the only G7 economy to shrink last year and is set
to be the group’s slowest-growing economy again this year, according to our
latest projections. Some pundits say Germany’s economic model is irreparably
broken. They argue strong growth in previous decades was based on importing
cheap Russian gas, which in turn powered Germany’s highly competitive export
industries. With this cheap gas no longer available, the German manufacturing
model doesn’t work anymore, or so the story goes.

But is this accurate? It’s certainly true that the shutoff of Russian gas in
2022 contributed to spiking inflation and cost-of-living pressures. However, the
rise in gas prices has proven to be temporary. After soaring in 2022, wholesale
gas prices have now fallen back to 2018 levels.

Broader measures of Germany’s international competitiveness paint a similar
picture of substantial recovery: Germany’s terms-of-trade (an index of export
prices relative to import prices) has returned to the same level as before the
energy shock. And Germany’s trade surplus reached 4.3 percent of GDP last
year—lower than the excessively high surpluses of the pre-pandemic years but
above the average of the last two decades—and is likely to increase further this
year.

 

Concerns about widespread deindustrialization are similarly overstated. While
the energy-intensive chemicals, metals, and paper industries have contracted,
they only account for 4 percent of the economy. Auto production, by contrast,
rose by 11 percent last year. Germany's electric-vehicle makers are embracing
the green transition. In 2023, Germany’s electric vehicle exports increased by
60 percent. Two German manufacturers for which data are available, Volkswagen
and BMW, alone account for over 10 percent of global electric vehicle sales.

 

German manufacturers also adapted to the energy crisis and supply-chain
disruptions by shifting into higher value-added products and using fewer
intermediate inputs. As J.P. Morgan’s Greg Fuzesi and others have noted, this
means that manufacturing value-added has remained steady even as industrial
production has fallen. Industrial production, in other words, has become a less
useful measure of the performance of the economy as a whole.

 

Why then has Germany’s economy been so weak? This reflects a combination of
temporary factors and some more structural ones. On the temporary side, when
inflation surged, consumers cut back on purchases. The European Central Bank
also raised interest rates to prevent higher inflation from becoming entrenched,
which in turn depressed housing construction and other interest-sensitive
sectors. A post-pandemic rebalancing of global demand away from manufactured
goods and back toward services was also unfavorable for Germany’s
manufacturing-intensive economy.

The good news is that these temporary headwinds should gradually fade over the
next year or two.

The bad news is that a more fundamental structural headwind—sluggish
productivity growth—is likely to remain, absent reforms, while
another—population aging—will accelerate sharply.

Making Germany More Productive

These fundamental headwinds are the main obstacles Germany faces in improving
its medium-term growth prospects.

 

Germany’s working-age population has been buoyed over the last decade by
migrants escaping regional conflicts. As this migrant wave ends and baby boomers
retire over the next five years, the growth rate of Germany’s labor force will
drop by more than in any other G7 country. This will put downward pressure on
GDP per person because there will be fewer workers for each retiree. It will
also lead to a combination of higher social security contributions and lower
pensions, absent reforms. And a more elderly population will increase demand for
healthcare services, drawing workers away from other industries. Labor shortages
could also deter investment.

Greater immigration could be a powerful force to counter these factors. However,
prospects for this are uncertain.

Germany could also increase its labor supply by making it easier for women to
extend their working hours. There are 2.3 million fewer women working than men,
and women are five times more likely to work part-time. Expanding access to
reliable childcare and reducing taxes for secondary earners in married couples
could help close these gaps.

Another solution is to raise productivity, which has been dragged down by
inadequate investment in public infrastructure. Public investment declined in
the 1990s and, since then, has barely been enough to offset depreciation. This
puts Germany near the bottom of advanced economies in public investment. Money
that has been budgeted for investment is routinely underspent, often because of
staff shortages in municipalities.



To boost public investment, Germany could expand municipalities’ planning
capacity though consulting services programs like Partnerschaft Deutschland.
Germany could increase financing for public investment by reforming other
expenditures, mobilizing more revenue, or adjusting the debt brake limits on
federal borrowing, as explained in our most recent staff report. The debt brake
could be eased by around 1 percent of GDP while still allowing public debt to
decline as a share of GDP.

Productivity could also be enhanced by cutting red tape, which is a barrier to
both investment and starting new businesses. For example, it takes about five to
six years to get permission to build an onshore wind farm. And it takes 120 days
to obtain a business license, more than double the OECD average.

Digitalizing government services could also speed up processes. Germany lags
behind other EU countries in offering online services to businesses, including
registration and tax filing. For example, only 43 percent of government services
pre-fill personal data on online forms compared with the EU average of 68
percent.

Germany faces important economic challenges, but it also possesses policy levers
to overcome them and secure a brighter economic future. It’s time to use them.

****

Kevin Fletcher is an assistant director, and Harri Kemp and Galen Sher are
economists in the IMF's European Department.

 * About
 * Research
 * Countries
 * Capacity Development
 * News
 * Events

 * Videos
 * Data
 * Publications
 * Social Media Hub
 * Annual Report
 * Copyright and Usage

 * Privacy Policy
 * Contact Us
 * Careers
 * Glossary
 * Scam Alert
 * IMF Brand

 * عربي
 * 中文
 * Français
 * 日本語
 * Русский
 * Español

© International Monetary Fund. All rights reserved.

 * 
 * 
 * 
 * 
 * 
 * 
 * 
 * 
 *