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Germany’s recent economic performance has been solid, with record low unemployment rates and sound fiscal position, which sets it apart from many European countries. However, medium-term potential growth prospects remain subdued. Germany shares a number of challenges with Japan and Korea, such as rapid population ageing, low hours worked by women and subpar productivity in non-manufacturing sectors.
Previous Going for Growth recommendations include:
- Promote competition in services by reducing regulatory barriers to competition, such as compulsory membership in professional chambers.
- Improve tertiary education outcomes by delaying tracking in lower secondary education further and developing tuition fees as well as student loans with income contingent repayments.
- Strengthen work incentives by reducing tax wedges on labour income and shifting taxation towards less distortive sources.
- Remove obstacles to full-time female labour participation by introducing mandatory healthcare contributions for non-working spouses and by reforming the joint taxation of married couples. .
- To avoid the risk of labour market duality, ease job protection for regular workers.
Actions taken: Notable reforms in these areas over the past two years include:
- Long-distance bus services were liberalised last year, but the scope for further reforms in relaxing barriers to competition in services sectors remain.
- A legal guarantee for a childcare place for children older than one year has been introduced and the provision of full-day schooling has increased. Both measures should improve working opportunities for women. However, a subsidy has been introduced for parents whose young children do not attend formal childcare facilities.
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of Germany, reforms facilitating access to full-time work for women may help reduce income inequality and lower household savings, thereby strengthening domestic demand, and narrowing the current account surplus. Reforms to open up services to competition would also strengthen domestic demand by improving opportunities to invest, innovate and create jobs.
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