Photo by Ingo Joseph
In its annual assessment of the German economy, the IMF has urged the country to lower tax rates on lower income households and to increase investment in its digital infrastructure. The moves would reduce Germany's vulnerability to such external factors as trade protectionism.
The IMF said that there is a huge imbalance in Europe's biggest economy and it is reflected in the country's account balance. It's a message that has been often reiterated by Germany's trade partners and is a bugbear of US President Donald Trump.
“Germany’s economic fundamentals are sound, public and private balance sheets are healthy, unemployment is at a historical low, wages have finally accelerated, and the large current account surplus is slowly shrinking,” said the IMF report.
However the report went on to say: “Though the external surplus has come down from its peak, it remains well above the level consistent with fundamentals and is expected to remain so in the medium term. This contributes to global imbalances at a time when trade tensions threaten Germany’s export-dependent economy. Faster wage growth, which would be consistent with the very tight labour market, could help accelerate real exchange rate appreciation and speed up external rebalancing, while also ensuring that the benefits of growth are widely shared.”
The German economy stagnated at the end of 2018 and a predicted rebound this year seems uncertain to happen as trade tensions with the US are being ramped up, though some companies will benefit from strengthen ties with China.
The German economy has taken some high-profile knocks recently with two of the country's biggest corporations fighting scandals, investor rebellions and lawsuits. Bayer, which acquired Monsanto last year, has been ordered to pay $2-billion to a couple in the US over the glyphosate-based weedkiller Roundup, which the couple allege gave them non-Hodgkin's lymphoma. The board of the chemical giant has also been defending itself against angry investors, who delivered a vote of no-confidence. Also, Volkswagen is still reeling from the ongoing emissions scandal, which also took in Audi, Porsche and SEAT. The issue has also caused consternation amongst Volkswagen investors who were preparing for a revolt of their own at the company's annual general meeting.
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