Germany—2013 Article IV Consultation: Concluding Statement of the IMF Mission
Amid strong domestic fundamentals, a recovery in activity in Germany is expected in the second half of 2013. A more robust rebound is being held back by continued weakness in business investment, mainly related to uncertainty surrounding prospects and policies for the euro area, despite the progress made so far. The slight loosening of the fiscal stance envisaged this year is appropriate, and fiscal over-performance should be avoided. Domestic financial sector reforms should be undertaken with a view to ensuring both full harmonization with European initiatives and clarity on the emerging financial landscape. Structural reforms to raise the German economy’s growth potential remain an important priority.
Uncertainty is holding back a pick-up in growth
1. Growth in 2013 is expected to be weak. Domestic fundamentals continue to remain strong and past reforms have paid off as seen in low unemployment. While consumption has been robust, business investment has been declining since late 2011. The uncertainty, mainly surrounding prospects for the euro area and the ongoing recession in the region, have led to declining German exports to the region as well as a sharp pull back in business investment. Amid still elevated euro area uncertainty, we now project GDP in Germany to expand at around 0.3 percent in 2013. A gradual pick-up in activity projected towards the end of the year is conditional on a further and tangible reduction in this uncertainty and a materialization of the expected gradual recovery in the rest of the euro area.
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