The IMF’s annual Article IV consultation with Germany took place from 2–15 May 2018. The IMF delegation conducted talks with various federal ministries, the Deutsche Bundesbank, and industry associations in Berlin. The Executive Board’s discussion on 29 June 2018 concluded this year’s Article IV consultation with Germany. The staff report is available on the IMF’s website.
Article IV consultations
One of the IMF’s central tasks is to engage in dialogue with its members, with a particular focus on the national and international ramifications of their economic and fiscal policies. To this end, the IMF conducts yearly consultations with all of its members. The principles underpinning these consultations are laid dartikel IV konsown in Article IV of the IMF’s Articles of Agreement. The first step is normally a visit by a team of IMF economists to the country under review, where they gather information on economic and fiscal conditions and discuss economic and fiscal policy priorities with government representatives. The team’s findings are then compiled in a report that is submitted for discussion to the IMF’s Executive Board, which represents all of the IMF’s members. Following the Executive Board’s deliberations, the IMF issues a press release summarising the consultation’s key findings.
The IMF analysis commends the positive economic performance in Germany, noting robust growth and further improvements in employment and public finances. The IMF predicts that in the medium term challenges will arise from an ageing population and low productivity growth. It also points to the risk posed by the spread of protectionist tendencies worldwide. The IMF takes a positive view of growth-enhancing measures that have been set out in the Coalition Agreement, notably the increase in public investment, and welcomes the steps to raise labour force participation rates among women.
The IMF supports the German government’s fiscal policy approach: Due to the German economy’s sustained high rates of capacity utilisation, expansionary fiscal policies that increase public consumption would be counterproductive at this point in time.
Like the German government, the IMF considers the German current account surplus as high. However, the IMF’s in-depth analysis also shows that the surplus is driven to a large extent by the structure of trade and industry in Germany, along with demographic factors. Taking the same view as the German government, the IMF believes that the surplus has not been caused by any one German policy measure. Germany and the IMF also agree that increased private and public investment and stronger economic growth are likely to help reduce the current account surplus, although the IMF saw a greater need to take action on this issue. Sound fiscal policy and structural reforms remain a prerequisite for spurring economic growth and enhancing the climate for private investment. But international trading partners bear just as much responsibility: The effects of expansionary fiscal and economic policies pursued by other countries such as the U.S. still decisively shape trends in the German current account surplus. Further important factors are trends in the euro exchange rate and in oil and energy prices.
The IMF, too, underlines the importance of investing in digital infrastructure, and commends the measures introduced to accelerate Germany’s digital transformation and mobilise more venture capital. However, the IMF also states that Germany needs to put in place further reforms if it wants to maintain its role as an innovation leader. The IMF stresses the importance of facilitating new business creation and promoting competition in network industries and professional services.
The IMF finds no immediate risks threatening financial market stability in Germany. However, it does place a special emphasis on rising real-estate prices in certain cities and regions of Germany. Analysing profitability in the banking sector, the IMF notes that the sector is being weighed down by low interest rates and high operational costs.
The next Article IV consultation with Germany will take place in 2019.