Deeper reforms in Germany will ensure more inclusive and sustainable growth

Merketl Gutteres UN

Secretary-General António Guterres (left) at a press encounter alongside German Chancellor Angela Merkel. Source: Video screen capture

This article is brought to you in association with OECD.

The German economy is undergoing a robust expansion, with record-low unemployment and real wage gains underpinning domestic demand while strong exports are driving business investment. The strong fiscal position will offer opportunities for funding structural reforms and public investment to meet future challenges, according to a new report from the OECD.

The latest OECD Economic Survey of Germany looks at the multiple factors behind years of steady growth and high levels of well-being, as well as the challenges remaining to ensure the benefits are shared by all. The Survey projects growth topping 2% for the 2018-19 period, and lays out an agenda for ensuring sustainable and more inclusive growth going forward.

The Survey, presented in Berlin by OECD Secretary-General Angel Gurría, highlights the need for new policies to help reduce inequality and poverty risk, and recommends more extensive use of new technologies, including for the low-carbon transition. It also points to the need for new strategies to boost productivity, improve skills across the labour force and prepare for the future of work.

“Germany’s recent economic performance is remarkable, and the robust expansion appears set to continue,” Mr Gurría said. “Unemployment is at record low levels and Germany is providing jobs, and better lives, to hundreds of thousands of immigrants. More must be done now to ensure that today’s strong economic and social results are sustained and extended to all.” Read the full speech.

The Survey says that economic progress will hinge on improving productivity growth, which has been held back by low levels of skills and slow diffusion of new technologies. Boosting entrepreneurship, through efficient e-government services and other improvements to the business environment, and by removing barriers for more women to become entrepreneurs, can speed up technology diffusion and raise productivity among SMEs. Improving competition and increasing investment in digital networks would allow businesses to better harness digital technologies, while reducing government ownership in the Landesbanken, car manufacturing, telecommunications and postal services would allow reallocation of resources across the economy.

Improving both the acquisition of skills and their use will also be critical as workers prepare for jobs that will be altered by automation, digital platforms and other technological changes. The education and training system will play a key role to improve access to economic opportunities in the context of technological change, including through life-long learning.

Germany’s strong fiscal position offers space for financing policies aimed at making the economy more inclusive. This could include tax relief on second earners to boost women’s participation in the workforce, as well as expanding childcare, early childhood education and primary education.

Transport policy reforms to improve electrification of road transport and reduce congestion in the cities by boosting uptake of ride-sharing services vehicles would help make growth greener and ease the transition to a low-carbon future, the Survey said.

An Overview of the Economic Survey, with the main conclusions, is accessible at: http://www.oecd.org/eco/surveys/economic-survey-germany.htm.

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