On 18 July 2024 the IMF issued a report following consultations with Germany under Article IV of the IMF’s articles of agreement.

The German economy has begun to recover from the energy price shock. The high energy prices caused by the cessation of the supply of Russian gas contributed to inflation during 2022/23, hindering economic activity. The strong policy response by the government mitigated the impact. Conservation efforts and measures to secure new energy supplies have helped to reduce wholesale gas prices to lower levels.

Gradual economic recovery is expected to continue in 2024, the recovery being driven by private consumption. With wage growth now exceeding inflation, private consumption is expected to drive the recovery during 2024. The economic growth and increased consumer confidence should further boost consumption and investment in 2025. However, in the medium term, population aging is forecast to slow GDP growth to below 1%, unless there are increases in productivity or higher immigration than expected. The rapid population aging is also forecast to increase pension and healthcare costs.

The IMF recommends that in view of the structural challenges, the government should pursue additional reforms to strengthen economic growth by boosting investment, productivity and the labour supply. Further increases in public investment are needed to upgrade infrastructure in transport, energy and communications. Higher public investment would also help to raise productivity and economic growth, supporting the transition to a green and digital economy. Further room for this investment could be created through pension reforms, reduction in environmentally harmful subsidies and other revenue and expenditure measures.

The IMF report recommends that the government should continue efforts to reduce red tape, promote digitalization and innovation and deepen the European single market. Efforts should continue to strengthen the labour supply. The IMF therefore welcomes the efforts to expand access to childcare services and to reduce the effective marginal tax rate on second earners.

The report notes the efforts to strengthen the framework for anti-money laundering and combating the financing of terrorism (AML/CFT), with the formation of a new federal financial crime agency and improved data quality in the registry of beneficial ownership. The report also notes Germany’s leading role in the climate agenda and the introduction of measures to streamline the process for approval of solar and onshore wind projects. More efforts are however required in relation to the implementation of renewable energy.