Germany - Economic forecast summary (June 2016)


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Economic growth is projected to remain solid, as a robust labour market and low oil prices underpin private consumption, while low interest rates and the housing needs of refugees boost residential investment. Business investment will strengthen somewhat, as capacity utilisation and employment rise. Demand for German exports in emerging market economies and euro area countries are expected to recover gradually. The refugees will gradually join the labour force. Robust domestic demand growth will reduce the current account surplus, which will nevertheless remain very large.

The budgetary stance is mildly expansionary, which is appropriate as spending room is available to improve the integration of immigrants and to strengthen active labour market policies for those who have difficulties finding work. In addition, gaps remain in the provision of early childhood education and care, full-day primary schooling and transport infrastructure. The education system should provide more support for youth with a weak socio-economic background. These measures would boost the inclusiveness of the ongoing economic expansion, and are an investment to raise growth in the future.

Productivity has grown little in recent years and is relatively low in services. Accelerating refugees’ access to the labour market and further raising their skills would expand output, reduce dependence on public support and include refugees more rapidly in society. Reducing the high taxes on second earners would remove barriers for women to work full-time, improving access to more productive jobs and careers. Reforms to remove barriers to entry and competition in professional services and network industries would strengthen productivity and investment and could reduce the current account surplus.

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