A return to growth is, in turn, expected to reinforce confidence, which, alongside a gradual easing of monetary policy, should further bolster consumption and investment next year, the IMF said after its executive board concluded the Article IV consultation with the country recently.
Inflation in Germany is expected to slowly ease further as lower energy prices continue to pass through to retail prices, with core inflation remaining somewhat above headline inflation due to robust wage growth, the IMF noted.
Over the medium term, however, rapid population aging is expected to slow gross domestic product (GDP) growth to below 1 per cent, absent significant increases in productivity or much higher-than-expected immigration.
Risks to the outlook are broadly balanced. Upside risks include the possibility that positive economic news could spur a faster-than-expected recovery in consumption and investment.
Key downside risks include the potential for accelerating geo-economic fragmentation, worsening global conflicts and intensifying stress in global commercial real estate markets. Uncertainty about the pace of disinflation poses risks in both directions, an IMF release said.
To further boost potential growth, IMF directors urged German authorities to continue efforts to cut red tape, promote digitalisation and innovation, and deepen the European single market, including by progressing towards a Capital Markets Union.
They also encouraged continued efforts to strengthen labour supply, including by enhancing the integration of immigrants and further promoting women’s full-time labour market participation.
ALCHEMPro News Desk (DS)
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