Strong domestic demand and exports are driving growth. Record-low unemployment and real wage gains have underpinned consumption. Low interest rates and immigration boost residential construction. Exports benefit from a goods mix suited to investment needs in high-growth emerging economies and the recovery of the euro area economy. Business investment is picking up with the strong exports. Credit growth remains modest. Wages are growing moderately. Recent collective bargaining outcomes points to some acceleration in wage growth. Unions have increasingly negotiated non-wage benefits to ensure a better work life balance. However, rising inflation, primarily due to higher oil prices, is eroding real wage gains to some extent (Figure A).
OECD Economic Surveys Germany June 2018 OVERVIEW www.oecd.org/eco/surveys/economic-survey-germany.htm This Overview is extracted from the 2018 Economic Survey of Germany. The Survey was discussed at a meeting of the Economic and Development Review Committee on 23 April 2018 and is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries. This document, as well as any data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. OECD Economic Surveys: Germany © OECD 2018 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to
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[email protected] of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. EXECUTIVE SUMMARY │ 1 OECD ECONOMIC SURVEYS: GERMANY 2018 © OECD 2018 Executive summary Economic growth is robust and wellbeing is high ● Strong domestic demand and exports are driving growth. ● Wages are growing moderately. ● Economic growth will slow somewhat, due to capacity constraints. ● The current account surplus remains large. ● Germans enjoy high living standards. Using fiscal policy to address structural challenges lying ahead ● The strong fiscal position provides room in the near term to fund spending priorities. Productivity growth is held back by slow technology diffusion ● Labour productivity growth in recent years has been subdued. ● Entrepreneurship is key to faster technology diffusion and higher productivity among SMEs. ● Government ownership in business sector activities holds back reallocation. ● Improving competition and boosting investment in digital networks would allow to better harness new technologies. Preparing for the future of work with new and changing skills ● Automation, digital platforms, and other technological changes are altering the nature of work. ● Technological change increases the demand for cognitive and non-cognitive skills. Policies to improve skills and better skills use boost inclusive growth ● Impressive progress has been made in reducing the impact of socio-economic background on education outcomes. ● Better opportunities for women to develop their careers would boost productivity and reduce poverty risk. Transport policy reform can contribute to green growth and boost wellbeing. ● Emissions from transport have increased despite substantial gains in efficiency, leaving a weak spot in the overall climate policy mix. 2 │ EXECUTIVE SUMMARY OECD ECONOMIC SURVEYS: GERMANY 2018 © OECD 2018 Economic growth is robust and wellbeing is high Strong domestic demand and exports are driving growth. Record-low unemployment and real wage gains have underpinned consumption. Low interest rates and immigration boost residential construction. Exports benefit from a goods mix suited to investment needs in high-growth emerging economies and the recovery of the euro area economy. Business investment is picking up with the strong exports. Credit growth remains modest. Wages are growing moderately. Recent collective bargaining outcomes points to some acceleration in wage growth. Unions have increasingly negotiated non-wage benefits to ensure a better work life balance. However, rising inflation, primarily due to higher oil prices, is eroding real wage gains to some extent (Figure A). Figure A. Wage growth is moderate Seasonally adjusted 1. Harmonised consumer price index (HICP). Core HICP excludes energy, food, alcohol and tobacco. 2. Average nominal wage per employee. Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database). StatLink 2 http://dx.doi.org/10.1787/888933737096 Economic growth will slow somewhat, due to capacity constraints (Table A). The recovery in the euro area will sustain exports and investment in equipment, while private consumption and housing investment may decelerate somewhat due to slower employment and real wage growth. Consumer price inflation may rise modestly, as firms can absorb the impact of higher wages in profit margins. The fiscal stance is projected to be somewhat expansionary, as the new government plans tax reductions and higher spending on education, digital infrastructure and social transfers. Nonetheless, strong tax revenue growth and low interest rates are projected to raise the budget surplus to 1.5% of GDP. Table A. Economic growth will remain robust 2017 2018 2019 Gross domestic product 1 2.5 2.1 2.1 Private consumption 2.1 1.0 1.6 Gross fixed capital formation 3.9 3.5 3.9 Exports 5.3 4.5 4.5 Imports 5.6 4.3 5.1 Unemployment rate 3.7 3.4 3.3 Consumer Prices 1.7 1.7 2.0 Core Consumer prices 1.3 1.3 2.0 Current account (% of GDP) 8.1 8.3 7.9 General government fiscal balance 1.3 1.5 1.5 1. Working-day adjusted. Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database). The current account surplus remains large. Saving exceeds investment in the public and private sectors, notably in the corporate sector, where domestic investment has not kept pace with profitability. Exchange rate and energy price movements also mattered. Structural reforms to boost long-term, inclusive green growth and the use of fiscal space to support such reforms could reduce the current account surplus, by strengthening investment and reducing household saving. Germans enjoy high living standards, especially in areas like jobs and earnings, and work-life balance. Disposable household income is more equally distributed than in other large OECD economies. However, inequality in wealth and market income is relatively high. Relative poverty risks relate to a high incidence of low-wage employment among low and middle-skilled workers as well as part-time working women. -0.5 0.5 1.5 2.5 3.5 4.5 20 10 Q 1 20 10 Q 3 20 11 Q 1 20 11 Q 3 20 12 Q 1 20 12 Q 3 20 13 Q 1 20 13 Q 3 20 14 Q 1 20 14 Q 3 20 15 Q 1 20 15 Q 3 20 16 Q 1 20 16 Q 3 20 17 Q 1 20 17 Q 3 20 18 Q 1 Inflation¹ Core inflation¹ Wage rate² Y-o-y % changes http://dx.doi.org/10.1787/888933737096 EXECUTIVE SUMMARY │ 3 OECD ECONOMIC SURVEYS: GERMANY 2018 © OECD 2018 Using fiscal policy to address structural challenges lying ahead The strong fiscal position provides room in the near term to fund spending priorities, such as increasing provision of high-quality childcare and full-day schooling, adult skills, or investing in infrastructure and new technologies, as argued below. Fiscal leeway should be used in a prudent manner, taking capacity constraints into account. In the medium term, higher interest rates and ageing-related spending will reduce fiscal space. Additional structural reforms will be needed to maintain sustainability in the long run. Further room for prioritising spending can be identified by more extensive use of spending reviews. Productivity growth is held back by slow technology diffusion Labour productivity growth in recent years has been subdued (Figure B), which poses challenges in raising incomes and wellbeing. Slower productivity growth partly reflects strong employment performance, subdued investment, rising skill shortages and slower adoption of new technologies, including in the public sector. Productivity growth has been weaker among small and medium sized firms. Productivity can be boosted by encouraging more firms and individuals to seize opportunities new technologies provide, improving also inclusiveness. Figure B. Labour productivity growth has slowed down Average annual rate of trend labour productivity growth Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database). StatLink 2 http://dx.doi.org/10.1787/888933737115 Entrepreneurship is key to faster technology diffusion and higher productivity among SMEs. Firm creation has been declining partly due to strong employment growth. The lower income security associated with self- employment could hold back entrepreneurship. The period during which failed entrepreneurs must repay debt can last up to six years, discouraging firm creation. Women are under- represented among entrepreneurs, especially in technology-intensive sectors. R&D tax incentives may boost innovation if designed carefully to benefit fully young firms which have not generated profit. Well-developed e- government services can reduce the administrative burdens on start-ups. Government ownership in business sector activities holds back reallocation of resources and the development of new business models. Privatising government stakes in businesses, including in the Landesbanken, could reduce risk of incumbent bias, for example in lending. Improving competition and boosting investment in digital networks would allow to better harness new technologies. A larger number of mobile communication operators would result in more innovative services at lower prices. The upcoming radio spectrum auction for 5G networks should be used to promote competition in the mobile market. This would also stimulate demand for highest-speed broadband services, boosting roll-out. More investment is needed to expand high-speed broadband in rural areas where unsubsidised provision is unlikely. Preparing for the future of work with new and changing skills Automation, digital platforms, and other technological changes are altering the nature of work