Skip to main content

Germany Deutches Museum Munich m.salo/Flickr

Germany’s Golden Opportunity

The German economy’s enviable combination of strong growth, low unemployment, favorable financing conditions, and large budget surpluses masks long-term vulnerability. To place the economy on a stronger footing – and to help pull Europe out of its malaise – will require substantially higher public and private investment.

BERLIN – The German economy appears unstoppable. Output is expected to grow by more than 2% this year, and wages by 3%, with the current-account surplus set to reach a towering 8.4% of GDP. Unemployment has been halved over the last decade, and now stands at an all-time low. German exporters remain highly innovative and competitive. And the government is recording a sizeable budget surplus. While the rest of Europe remains mired in crisis and self-doubt, Germany’s future seems bright and secure. But appearances can be deceiving.

In fact, today’s rosy macroeconomic data tell only part of the story. Since the euro was established in 1999, Germany’s productivity growth has been no more than average among European countries, real wages have declined for half the workforce, and annual GDP growth has averaged a disappointing 1.2%.

A key reason for this lackluster performance is Germany’s notoriously paltry investment rate, which is among the lowest in the OECD. The result is deteriorating infrastructure, including roads, bridges, and schools. This, together with an inadequate regulatory and business environment, has raised concerns among companies; since 1999, the largest German multinationals have doubled their employee headcounts abroad, while cutting jobs at home.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/GzvCZV8;
  1. reinhart39_ Sha HantingChina News ServiceVisual China Group via Getty Images_jerome powell Sha Hanting/China News Service/Visual China Group via Getty Images

    Jerome Powell’s Dilemma

    Carmen M. Reinhart & Vincent Reinhart

    There is a reason that the US Federal Reserve chair often has a haunted look. Probably to his deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that President Donald Trump will be reelected next year.

    0
  2. mallochbrown10_ANDREW MILLIGANAFPGetty Images_boris johnson cow Andrew Milligan/AFP/Getty Images

    Brexit House of Cards

    Mark Malloch-Brown

    Following British Prime Minister Boris Johnson's suspension of Parliament, and an appeals court ruling declaring that act unlawful, the United Kingdom finds itself in a state of political frenzy. With rational decision-making having become all but impossible, any new political agreement that emerges is likely to be both temporary and deeply flawed.

    1
  3. sufi2_getty Images_graph Getty Images

    Could Ultra-Low Interest Rates Be Contractionary?

    Ernest Liu, et al.

    Although low interest rates have traditionally been viewed as positive for economic growth because they encourage businesses to invest in enhancing productivity, this may not be the case. Instead, Ernest Liu, Amir Sufi, and Atif Mian contend, extremely low rates may lead to slower growth by increasing market concentration and thus weakening firms' incentive to boost productivity.

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions