On 19 January 2021 the IMF issued a report following the conclusion of its consultations with Germany under Article IV of the IMF’s articles of agreement.

As a result of the COVID-19 pandemic and the domestic containment measures Germany’s economy contracted by 11.5% in the first half of 2020. However after strong macroeconomic policy support and health measures the economy has remained resilient. Fiscal measures totalling more than 10% of GDP have been introduced over the past year and these together with the expansion of public guarantees amount to one of the largest fiscal responses to the pandemic in Europe.

Germany has expanded short-time work benefits to preserve jobs and support individual and household incomes. Borrower support measures and tax deferrals have given businesses the necessary liquidity. Inflation has fallen to a negative figure as a result of falling energy prices, a reduction in value added tax (VAT) and a slowdown in aggregate demand.

The IMF predicts a difficult economy recovery with an uneven impact across industrial sectors and volatility caused by the course of the pandemic in early 2021. The levels of output before the pandemic will only be achieved again in 2022.

To provide further support to the labour market the IMF emphasises the importance of measures to help the hardest hit groups or those not covered by the short-time work program, including women, youth and the elderly. As the economic recovery begins to take hold the government should facilitate reallocation of resources by increasing skills training and incentives for job creation.

Following the end of the crisis the IMF considers that a structural reform is necessary to move to a greener economy. Increased public investment will be needed including prioritised investment in climate change mitigation, the digital economy and human capital.