Remarks by Angel Gurría,
5 April 2016
(As prepared for delivery)
Ladies and Gentlemen,
It is a great pleasure to be in Berlin to present the 2016 Economic Survey of Germany. I would like to thank the German government for its active support in the preparation of this important report.
The German economy has recovered well from the most severe economic crisis of our lifetime. In spite of continued global economic turbulence, growth is now steady at 1.4% in 2015 and close to 1.3% in 2016. We are expecting this growth to improve slightly to 1.7% in 2017. Thanks to an innovative and competitive manufacturing sector, export performance has been strong. External demand may have weakened recently, but the drivers of growth within Germany have broadened. The government budget balance may reach a small surplus this year, despite rising spending needs.
The unemployment rate has fallen to 4.4%, the lowest in the European Union. In contrast to most other OECD countries, Germany has managed to reduce poverty over the last decade. Income inequality remains below the OECD average. And the recent introduction of a minimum wage has improved the benefits of working for low wage earners.
These are impressive achievements, especially in the global economic context of the last decade. But there is little room for complacency. Germany still faces a number of key challenges.
First, despite strong competitiveness and favourable funding conditions, growth and investment have recently been weaker than in high income countries outside the Euro area. Labour productivity growth has slowed down and is particularly low in services. Productivity growth in the business sector has dropped to around ½ per cent in the last 3 years, compared to above 2% in pre-crisis years.
Stronger productivity growth will be critical to ensure rising living standards, particularly given population ageing. The richest 10% earn around 6.5 times what the poorest 10% earn, compared to nearly 10:1 on average in the OECD. The disposable incomes of the poorest households have not grown in real terms over the past decade, despite lower unemployment, suggesting that the fruits of growth and investment are not being shared by all.
These challenges will increasingly come to the fore as Germany seeks to integrate the 1 million humanitarian immigrants that sought asylum in 2015. Their integration into the German economy is a formidable challenge, but also an opportunity, and the OECD, with its 40 years of policy expertise on the integration of migrants, stands ready to assist Germany in this effort.
This Economic Survey proposes a number of policy responses to these challenges.
Staying with the issue of migrants, Germany has made an impressive effort to welcome refugees, stepping up training and improving access of asylum-seekers to education and to the labour market. But more could be done. For example, integrating young migrants faster in regular compulsory education and supplementing the curriculum with German classes; reducing the waiting periods to define when and in what capacity an asylum seeker can work; and/or considering less restrictive entry regulation in some services, like crafts, and opening up public employment further to non-EU nationals; identifying, certifying and fully utilising the migrants’ skills and skilling, reskilling or upskilling them when necessary.
Successful integration requires substantial upfront investment, but it pays - turning a challenge into an opportunity. Germany will eventually receive a generous intergenerational dividend.
The same is true of Germany’s ageing population. Employment among older workers has risen strongly, contributing to Germany’s economic success. The share of 55-64 year olds participating in the labour force has risen from just over 50% in 2005, to around 70%.Not only is this good for growth, but our OECD well-being data also shows that pensioners are happier when they combine pension income with employment.
So the pension system should not penalise those who choose to work beyond 65 or want to combine work with a pension. Pensioners who work should only have to pay social security contributions if they accrue benefits.
There is also much scope to further boost labour supply by tackling certain barriers that commonly affect women. Many women in Germany work part-time compared to the OECD average. The share of full-time employment for women stands at just over 60% compared to almost 75% in the OECD as a whole.
Lowering the tax burden on second earners and expanding childcare would give women more choice to pursue full-time work. This makes the economy more inclusive, which also makes it stronger: if women’s labour market outcomes would converge with the men’s, German GDP could be up to 20% higher.
Strengthening productivity and investment is also key to making growth more inclusive. Local governments are responsible for most government investment, resulting in poorer municipalities investing less than rich ones. These municipalities need more support to ensure economic opportunities for all.
And it’s not just about making growth inclusive, it’s also about making it greener. Germany can do more to harness investment for green growth at lower cost. For example, introducing, like Sweden, a tax on large emitters of NOx emissions.
The quality of German transport infrastructure is good, but there are indications that standards have been sliding recently. And investment in public infrastructure more generally is lagging behind Germany’s peers, pointing to the need for further investment.
Germany also lags behind in mobile broadband penetration, with about 65 subscriptions per 100 inhabitants, far below the OECD average of over 80. In fact, only 1% of all German subscriptions are fibre subscriptions, compared to rates of 65% for leading countries like Japan and Korea. Enhancing competition and encouraging investment will be key.
In addition, broadening the rights to issue SIM cards could unleash innovation. This would carry benefits for the whole economy. Particularly in the context of “Industrie 4.0”, whichdemands integrating manufacturing with knowledge-intensive services.
Ladies and Gentlemen,
In the words of Goethe, “Es ist nicht genug, zu wissen, man muß auch anwenden; es ist nicht genug, zu wollen, man muß auch tun” [Knowing is not enough; we must apply. Willing is not enough; we must do]. Germany has shown its commitment to policy action and implementation since our last OECD survey in 2014. But reform is a ‘state of mind’, it must go on. The OECD stands ready to support you to design, develop and deliver better policies for better lives in Germany.