Germany: Selected Issues

July2023 GERMANY SELECTEDISSUES IMFCountryReportNo.23/259 ThispaperonGermanywaspreparedbyastaffteamoftheInternationalMonetaryFundasbackgrounddocumentationfortheperiodicconsultationwiththemembercountry.ItisbasedontheinformationavailableatthetimeitwascompletedonJune28,2023. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.orgPrice:$18.00perprintedcopy InternationalMonetaryFundWashington,D.C. ©2023InternationalMonetaryFund June28,2023 GERMANY SELECTEDISSUES PreparedByAikoMineshima,GalenSher,JingZhou,YushuChen,andTingLan(allEUR). ApprovedBy EuropeanDepartment CONTENTS IMPACTOFHIGHENERGYPRICESONGERMANY’SPOTENTIALOUPUT3 A.Introduction3 B.AnalyticalApproach6 C.ImpactofHigherEnergyPrices8 D.ConclusionandPolicyDiscussion10 FIGURES 1.GasPriceandIndustrialProduction3 2.GermanIndustries’GasConsumptionandGasEfficiency_4 3.CorporateLaborCompensationandProfit_5 4.BaselineEnergyPricePathandImpactonPotentialGrowthandOutput9 5.ImpactofHigherEnergyPricesonPotentialOutput_9References11 BORROWER-BASEDMACROPRUDENTIALINSTRUMENTSINGERMANY12 A.Introduction12 B.TheCaseforAddingIncome-RelatedMacroprudentialInstrumentstotheToolkit_13 C.TheCaseforActivatingBorrower-BasedMeasuresinGermanyastheEconomyRecovers15 D.ConcernswithActivatingBorrower-BasedMeasuresandHowtoAddressThem19 E.MicrosimulationEvidenceofActivatingBorrower-BasedMeasuresinGermany23 F.IllustrativeApproachtoCalibratingBorrower-BasedMeasuresinGermany29 G.InternationalExperiencewithBorrower-BasedMeasures31 H.Conclusion33 FIGURES 1.ResidentialRealEstateandFinancialandMacroeconomicStability16 2.StructurallyLooseLendingStandardsinGermany18 3.ComparativelyLooseLendingStandardsonNewMortgagesinGermany.19 4.CounterfactualPolicyExperimentwithLTVandDSTILimits25 5.UnemploymentandHousePricesinGermany27 6.LossandLossPreventionbyLTVBucket29 7.ExampleCalibrationsofBorrower-BasedMeasuresinGermany30 TABLES 1.ActiveMacroprudentialInstrumentsforResidentialMortgageLoansinG7andSelectedEuropeanCountries,asofFebruary202322 2.ReferenceScenarioandHousingMarketCrashScenario26 3.ResultsoftheHousingMarketCrashScenario28 BOX 1.Germany’sExistingBorrower-BasedMeasures35References36 ANNEX I.TechnicalDetailsoftheMicrosimulation39 2INTERNATIONALMONETARYFUND IMPACTOFHIGHENERGYPRICESONGERMANY’SPOTENTIALOUPUT1 ThesurgeinenergypricessinceRussia’sinvasionofUkrainehasreducedtheenergy-intensivesector’sproductioninGermany,althoughthenon-energyintensivesector’sproductionhasheldupthanksinparttofirms’effortstoimproveenergyefficiency.Energypricesareexpectedtoremainelevatedintheforeseeablefuture,comparedtopre-warlevels,adverselyaffectingfirms’productivityandthusloweringGermany’spotentialoutput.Economicmodelingsuggeststhatthiseffectcouldbearound1¼percentofGDPinstaff’sbaseline,withsomeuncertaintyaroundthisestimate,givenuncertaintiesabouttheultimatemagnitudeoftheenergypriceshockandthedegreetowhichincreasedenergyefficiencycanmitigateit.Policiescanpromoteeffectiveadjustmenttotheshockbyincreasingproductivityandmaintainingstrongpriceincentivestoconserveenergyandinvestinrenewableenergyproduction. A.Introduction Figure1.GasPriceandIndustrialProduction (2015=100,seasonallyadjusted) 110 105 100 95 90 85 80 75 70 65 60 700 600 500 IPofenergy-intensiveindustries 400 IPexcl.constructionandenergy-intensiveindustries Naturalgasimportprices(rhs) 300 200 100 0 Sources:DestatisandHaverAnalytics. 1.ThesurgeinenergypricessinceRussia’sinvasionofUkrainehasledtoacontractionintheenergy-intensivesector’sproduction,whilethenon-energyintensivesector’sindustrialproductionhasremainedresilient.Attheir Jan-15Jun-15Nov-15Apr-16Sep-16Feb-17Jul-17Dec-17May-18Oct-18Mar-19Aug-19Jan-20Jun-20Nov-20Apr-21Sep-21Feb-22Jul-22Dec-22 peakin2022,Germany’snaturalgasimportpricesreachednearlytenfoldtheir2021average,beforefallingtobelowthreefoldthe2021averageasofApril2023.Inresponsetothesurgeingasprices,productionofenergy-intensiveindustries2declinedalmost20percentfrompre-warlevelsbetweenlate2021andlate2022(Figure1).Meanwhile,productionofotherindustriessawlimiteddeclinesduring2022,followedbyagradualincreasein2023aspandemic-inducedsupplydisruptionsstartedeasingandexternaldemandrecovered. 2.Amidthesurgeingasprices,Germanindustrieshaveconsiderablyreducedgas consumptionbysubstitutinggaswithothertypesofenergyorimprovingtheirenergyefficiency.Duringthesecondhalfof2022,Germanindustries’gasconsumptionwasonaverage 1PreparedbyYushuChen,TingLan,AikoMineshima,andJingZhou(allEUR). 2Energy-intensiveindustriesinclude:(i)manufactureofchemicalproducts;(ii)metalproductionandprocessing;(iii)manufactureofglassware,ceramics,stone,andearthprocessing,(iv)manufactureofpaper,cardboard,andgoodsmadefromthem;and(v)cokingplantandpetroleumprocessing.Theseindustriesconstituted13.2percentofindustrialproductionin2015(thebaseyearforthecurrentIPdata),and3.1percentofGDPin2020(thelatestavailabledatapoint). INTERNATIONALMONETARYFUND3 22percentbelo