Germany: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany

GERMANY IMFCountryReportNo.24/229 July2024 2024ARTICLEIVCONSULTATION—PRESSRELEASE;STAFFREPORT;ANDSTATEMENTBYTHEEXECUTIVEDIRECTORFORGERMANY UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2024ArticleIVconsultationwithGermany,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressReleasesummarizingtheviewsoftheExecutiveBoardasexpressedduringitsJuly15,2024considerationofthestaffreportthatconcludedtheArticleIVconsultationwithGermany. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonJuly15,2024,followingdiscussionsthatendedonMay28,2024,withtheofficialsofGermanyoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonJune28,2024. AnInformationalAnnexpreparedbytheIMFstaff. AStatementbytheExecutiveDirectorforGermany. Thedocumentslistedbelowhavebeenorwillbeseparatelyreleased.SelectedIssues TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.org InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund PR24/280 IMFExecutiveBoardConcludes2024ArticleIVConsultationwithGermany FORIMMEDIATERELEASE Washington,DC–July18,2024:OnJuly15,2024,theExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withGermany. TheGermaneconomyhasbeguntorecoverfromtheenergy-priceshock.Highenergypricesarisingfromtheshut-offofRussiangascontributedtosurginginflationduring2022–23,whichinturnweighedoneconomicactivity.Theimpactofthisshockwas,however,greatlymitigatedbyastrongpolicyresponse,includingtheprovisionofincomesupportwhilepreservingincentivestoconserveenergy.Conservationefforts,togetherwithstepstosecurenewenergysupplies,havehelpedreturnwholesalegaspricestomorenormallevels.Lowerenergypriceshaveinturn,togetherwithmonetarytightening,spurredrapiddisinflation.Realwagesarenowgrowing,andtheeconomyexpandedinthefirstquarterof2024. Gradualeconomicrecoveryisexpectedtocontinuethisyear.Withwagegrowthnowexceedinginflation,privateconsumptionisexpectedtodriverecoveryduring2024.Areturntogrowthis,inturn,expectedtoreinforceconfidence,which,alongsideagradualeasingofmonetarypolicy,shouldfurtherbolsterconsumptionandinvestmentnextyear.Inflationisexpectedtoslowlyeasefurtheraslowerenergypricescontinuetopassthroughtoretailprices,withcoreinflationremainingsomewhataboveheadlineinflationduetorobustwagegrowth.Overthemediumterm,however,rapidpopulationagingisexpectedtoslowGDPgrowthtobelow1percent,absentsignificantincreasesinproductivityormuchhigher-than-expectedimmigration.Rapidpopulationagingisalsoexpectedtosignificantlyincreasepensionandhealthcarecosts. Riskstotheoutlookarebroadlybalanced.Upsiderisksincludethepossibilitythatpositiveeconomicnewscouldspurafaster-than-expectedrecoveryinconsumptionandinvestment.Keydownsiderisksincludethepotentialforacceleratinggeoeconomicfragmentation,worseningglobalconflicts,andintensifyingstressinglobalcommercialrealestate(CRE)markets.Uncertaintyaboutthepaceofdisinflationposesrisksinbothdirections. ExecutiveBoardAssessment2 ExecutiveDirectorscommendedtheauthoritiesfortheirstrongeconomicfundamentalsandpolicyresponsetotheenergy-priceshock,whichgreatlymitigateditsimpact.Directorswelcomedthegradualeconomicrecoveryunderway,withbroadlybalancedrisks,andthedeclineofinflationtowardtargetlevels.Notingpersistentstructuralchallenges,they 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard. 2Attheconclusionofthediscussion,theManagingDirector,asChairmanoftheBoard,summarizestheviewsofExecutiveDirectors,andthissummaryistransmittedtothecountry'sauthorities.Anexplanationofanyqualifiersusedinsummingsupcanbefoundhere:http://www.IMF.org/external/np/sec/misc/qualifiers.htm. 2 encouragedadditionalreformstostrengthenpotentialgrowthbyboostinginvestment,productivity,andlaborsupply. Directorscommendedtheauthorities’planstofullyusetheflexibilityprovidedwithinthefiscalrulestoavoidanoverlytightfiscalstanceinthenearterm.Welcomingincreasedpublicinvestmentinrecentyears,theyemphasizedthatfurtherincreasesareneededtohelpupgradeinfrastructureintransport,energy,communications,andothercriticalareas.Higherpublicinvestmentwouldalsohelpwithexternalrebalancing,raiseproductivityandpotentialgrowth,andsupportthegreenanddigitaltransitions. Toaccommodatethisinvestmentandgivenrisingspendingpressuresrelatedtoaginganddefense,Directorsnotedthatfurtherfiscalroomc