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Economic growth is projected to remain solid, and the unemployment rate to fall further. Low unemployment and higher government spending will underpin private consumption. Low interest rates and immigration should sustain residential investment, but business investment is set to strengthen only gradually. Exports are benefiting from strong demand in Asia and the United States, but will weaken as the impact of past euro depreciation fades and import growth in China slows. The current account surplus will narrow somewhat, mostly as a result of higher energy prices. Strong revenue growth is projected to keep the government budget in surplus.
Fiscal policy needs to provide more support to address key structural weaknesses that are holding back inclusive growth. Extra spending should prioritise training for immigrants, improving childcare and expanding full-day primary schools. Lower taxes on second earners would reduce barriers for women’s access to more attractive jobs and careers, allowing skilled labour supply to expand in a tight labour market.
Strong integration in global value chains (including by outsourcing labour-intensive tasks, and strengthened sales in distant dynamic markets, notably Asia), depreciation of the euro and wage restraint have made Germany’s manufacturers very competitive. The number of workers on relatively low pay has risen, upward income mobility has fallen and the average duration of unemployment spells is long, although poverty remains low. High household saving, low business investment, and budget consolidation have all contributed to the large current account surplus. Reforms to remove barriers to entry in services and boost public infrastructure would strengthen investment and reduce the large current account surplus.
Economic Survey of Germany (survey page)