Germany Pressured to Invest More

The International Monetary Fund on Monday stepped up pressure on Chancellor Angela Merkel’s government to reduce Germany’s persistently large current account surplus by hiking public investment.
The IMF and the European Commission have long urged Germany to boost domestic demand by lifting wages and investment to help cut its large trade surplus. But the debate has heated up since the election of US President Donald Trump, who has repeatedly criticized Germany’s export strength, Reuters reported.
The IMF said boosting productivity growth and investment would raise the German economy’s long-term growth potential and reduce its “persistently large current account surplus”.
“The new government’s coalition agreement contains several welcome measures which will continue to address some of these challenges,” the IMF said in its annual policy recommendations.
“Yet the current favorable economic environment provides an opportunity for the new government to take more forceful policy actions,” the IMF added.
The comments followed a speech by French President Emmanuel Macron in the German city of Aachen last week in which he urged Germany to wean itself off the “fetish” of fiscal conservatism if it wants to become a leading force for European renewal.
The IMF said the German government should use the “ample available space within the fiscal rules” to further increase public investment in infrastructure and education.
Germany should also consider pension reforms to lengthen working lives, which would increase labor force participation of older workers, mitigate the need for workers to save as much for retirement and lower risks of old-age poverty, the IMF said.
Turning to the financial sector, the IMF suggested that German regulators should complete the toolkit for managing financial stability risks and urgently address data gaps.
“For banks and insurance companies, continued supervisory attention to interest rate risk and restructuring plans remains appropriate,” it said.
“The German economy is performing well,” the IMF said, adding that GDP growth had accelerated in 2017 as exports rebounded and investment picked up after a prolonged soft patch.
It said the short-term outlook was for robust growth. “But there are risks on the horizon: a rise in protectionism, geopolitical uncertainty, or a stalled reform agenda in the eurozone may negatively affect export prospects, weigh on investment and rekindle financial stress,” it added.