On 9 May 2016 the IMF published a staff report following the completion of consultations with Germany under Article IV of the IMF’s articles of agreement.

Economic growth in Germany will continue at a moderate pace in 2016 with strong domestic demand offsetting weak foreign demand. Risks to the economic outlook include a further slowdown in external demand, reduced confidence in the European project in some parts of Europe and further stress in the Euro area sovereign bond markets. An expansion of government spending in 2016 will be financed partly by revenue gains from the strong labor market and growing domestic demand.

A projected decline in the labor force after 2020 due to the ageing population requires measures to boost the labor supply in the medium term. These should include measures to integrate the refugees into the labor market, to increase opportunities for full time employment of women and to extend working lives. Measures should include decreasing marginal tax wedges to incentivize greater labor participation by women and other groups.

The automatic adjustment mechanisms that ensure the sustainability of the public pension system will result in sustained increases in contribution rates, thereby increasing the tax burden on labor that is already high. There will also be declines in pension benefits. More adequate levels of income could be achieved by extending working lives and this could be achieved by indexing the retirement age to life expectancy.

The IMF welcomes the government policy package aimed at adjusting the housing supply to the higher demand in the affordable segment. The report notes that the efficiency of real estate taxation could be improved by increasing property tax by updating property values and by reducing the real estate transfer tax rate. Reducing the rate of real estate transfer tax would also provide further incentives for new construction.