Economic outlook, analysis and forecasts

Germany - Economic forecast summary (November 2016)

 

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Economic growth is projected to remain solid, as a robust labour market, low interest rates and a mildly expansionary fiscal stance underpin consumption and residential investment. Demand from emerging market economies and euro area countries is expected to strengthen only slowly, holding back business investment. The unemployment rate will remain at historic lows. The current account surplus will fall somewhat but will remain high.


Budgetary policy needs to provide even more support to counter subdued demand in the euro area and to address key structural weaknesses holding back inclusive growth. Reforms to remove barriers to entry and competition in professional services, in telecommunications, postal and rail transport services and crafts would strengthen entrepreneurship, productivity and investment. More effective requirements for banks to separate investment from retail banking, and stricter leverage ratio requirements would reduce financial market risks.


The structural budget deficit is projected to remain within the medium-term target and government debt will continue to fall. Higher spending on key education services and tax reform would boost inclusive and green growth. Training for immigrants and the supply of childcare and full-day primary schools need to improve. Social security contributions for low-pay workers should be reduced. Lowering the tax rate faced by second earners in a family would remove significant work and career barriers for women. Tax expenditures for activities that damage the environment should be phased out and more taxes on emissions of harmful air pollutants introduced. Real estate valuations for tax purposes should reflect market values, reduced VAT rates should be phased out and taxation of capital gains extended to residential real estate.

 

 

 

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Other information

Economic Survey of Germany (survey page)

 

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