2018 OECD ECONOMIC SURVEY OF GERMANY Sustaining strong and inclusive growth Berlin, June 12 th 2018 http:/ / www.oecd.org/ eco/ surveys/ economic-survey-germany.htm @OECDeconomy @OECD
Wellbeing is high OECD Better Life Index, 20 17 Germany OECD Income and wealth 10.0 Subjective well- Jobs and earnings being 8.0 6.0 Personal security Housing 4.0 2.0 0.0 Environmental Work and life quality balance Civic engagement Health status and governance Education and Social connections skills Source : OECD (2017), OECD Better Life Index, w w w .oecdbetterlifeindex.org . 2
Economic growth is robust Real GDP, Index 20 0 7= 10 0 120 120 Euro Area Germany 115 115 110 110 105 105 100 100 95 95 90 90 2011 2007 2009 2012 2013 2014 2015 2016 2017 2008 2010 Source: OECD (2018), OECD Econom ic Outlook: Statistics and Projections (database). 3
Relative poverty is low Population with disposable incom e below the poverty line, % of population, 20 15 30 30 25 25 20 20 15 15 10 10 5 5 0 0 DNK SVK FRA ITA GRC LVA USA CZE ISL FIN NOR AUT NLD SVN LUX DEU HUN CHE SWE IRL BEL GBR POL OECD PRT KOR NZL AUS CAN JPN EST ESP CHL MEX TUR ISR Note : The poverty line is 60% of median household income. Household income is adjusted to take into account household size. Source : OECD (2018), OECD Social and Welfare Statistics (database). 4
Unemployment is at a record low Unem ploym ent rate, % of labour force 12 12 10 10 8 8 6 6 4 4 2 2 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 Source : Statistisches Bundesamt. 5
Most German youth are in employment, education or training Youth not in em ploym ent, education or training (NEET), % of 15-29 year-olds, 20 16 30 30 25 25 20 20 15 15 10 10 5 5 0 0 ISL LUX DNK NZL BEL USA LVA POL SVK IRL FRA CHL MEX GRC ITA NLD SWE CHE NOR DEU JPN AUT AUS SVN CZE CAN GBR FIN ISR OECD EST HUN PRT ESP TUR Source : OECD (2017), "Education at a glance: Educational attainment and labour-force status", OECD Education Statistics (database). 6
Wage growth remains moderate Nom inal wage growth and inflation Year-on-year growth rates, % 4.5 4.5 Inflation Nominal wage rate 3.5 3.5 2.5 2.5 1.5 1.5 0.5 0.5 -0.5 -0.5 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2010Q3 2011Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 2017Q3 Note: Inflation is that of the Harmonised consumer price index (HICP). Source : OECD (2018), OECD Economic Outlook: Statistics and Projections (database). 7
High corporate saving contributes to the current account surplus Current account and saving-investm ent balance, % of GDP 10.0 10.0 Current account balance Saving-investment balance of corporations 8.0 8.0 6.0 6.0 4.0 4.0 2.0 2.0 0.0 0.0 -2.0 -2.0 -4.0 -4.0 2001 2011 2005 2007 2015 2017 2002 2003 2004 2006 2008 2009 2010 2012 2013 2014 2016 Source: OECD calculations based on OECD (2018), OECD National Accounts Statistics (database) and OECD (2018), OECD Economic Outlook: Statistics and Projections (database ). 8
CHALLENGES 9
Trend productivity growth has slowed Average annual rate of labour productivity growth, 2.5 2.5 1996-2006 2006-16 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 DEU GBR JPN FRA CAN SWE USA Note: Average annual grow th in trend labour productivity. Source : OECD (2018), "OECD Economic Outlook No. 102 (Edition 2017/ 2)", OECD Economic Outlook: Statistics and Projections (database). 10
Many workers earn low wages Em ployees earning low wage, % of all em ployees 45 45 Germany EU 36 36 27 27 18 18 9 9 0 0 Total Low skilled Medium High skilled Women Men skilled Note: employees earning low wage are those earning less than two thirds of the median gross hourly earnings. Source : Eurostat (2018), Employment and working conditions (database). 11
Highly educated women earn much less than men Wom en's earnings as % of m en's earnings, Tertiary education graduates, 20 14 100 100 90 90 80 80 70 70 60 60 50 50 40 40 FRA AUT DEU OECD NLD AUS GBR DNK CAN FIN SWE Source : OECD (2016), Education at a Glance 2016: OECD Indicators. 12
CO2 emissions have fallen little in recent years CO2 em ission, tonnes per capita Germany OECD 11.0 11.0 10.5 10.5 10.0 10.0 9.5 9.5 9.0 9.0 8.5 8.5 8.0 8.0 1997 2001 2007 2011 1995 1996 1999 2002 2003 2004 2005 2006 2009 2012 2013 2014 1998 2000 2008 2010 Note: E mission is production based. Source : OECD (2018), Green Growth Indicators (database ). 13
Small particle emissions have not fallen recently Mean annual concentration of PM2.5, µg/ m ³ 19 19 Germany OECD 18 18 17 17 16 16 15 15 14 14 13 13 12 12 2001 2007 2011 1999 2002 2003 2004 2005 2006 2009 2012 2013 2014 2015 1998 2000 2008 2010 Source : OECD (2018), Green Growth Indicators (database). 14
USING FISCAL POLICY TO SUPPORT INCLUSIVE GROWTH 15
Labour taxes on low incomes are high Labour incom e tax and social security contributions, as % of labour costs, 20 17 50 50 Social security contributions Average tax wedge Personal income tax 40 40 30 30 20 20 10 10 0 0 USA ITA FRA CHL NZL ISR MEX CHE KOR IRL AUS CAN GBR LUX ISL NLD JPN OECD NOR TUR DNK POL PRT GRC FIN EST SVK SVN CZE SWE AUT DEU HUN BEL ESP Note: Income tax plus employee and employer social security contributions less cash benefits for single person, no child, earning 67% of average earnings. Source : OECD (2018), Taxing Wages Statistics (database). 16
Environmental tax revenue could be higher Environm ental tax revenue, % of GDP, 20 14 5 5 4 4 3 3 2 2 1 1 0 0 USA SVK FRA GRC ITA DNK MEX CAN CHL NZL JPN CHE ESP AUS DEU LUX ISL BEL NOR IRL PRT SWE GBR KOR EST HUN CZE FIN AUT ISR NLD TUR SVN Source : OECD (2018), "OECD Instruments used for environmental policy", OECD Environment Statistics (database). 17
Expenditure on primary education is low Annual public expenditure in prim ary education, Per student, USD thousand, PPPs, 20 14 21.2 20 20 16 16 12 12 8 8 4 4 0 0 FRA USA DNK NZL IRL AUS NLD DEU OECD FIN JPN CAN SVN KOR BEL SWE AUT ISL GBR NOR CHE LUX Source : OECD (2017), Education at a Glance 2017: OECD Indicators. 18
Ageing related spending will increase % Projections on ageing related spending, % % of GDP 25 25 Pensions, net Health care Long-term care 20 20 15 15 10 10 5 5 0 0 2020 2035 2060 Source : European Commission (2015), "The 2015 ageing report: Economic and budgetary projections for the 28 EU Member States (2013-2060)". Based on the reference scenario. 19
Key recommendations for fiscal policies supporting steady inclusive growth • Use fiscal leeway in a prudent manner, taking capacity constraints into account, to lower the taxation of low wage earnings and to raise priority spending on childcare, education and life-long learning as well as for low- emission transport infrastructure. • Index the legal pension age to life expectancy. • Introduce spending reviews more broadly at the federal and Länder level and use them to reallocate funding across broad spending fields. More in the Key Policy Insights of the Econom ic Survey of Germ any 2018 20
Key recommendations for boosting green growth • Extend charging station infrastructure to promote electrification of road transport. • Develop congestion pricing. • Remove regulatory hurdles to new low-emission urban transport services, including ride-sharing. More in the Key Policy Insights of the Econom ic Survey of Germ any 2018 21
BOOSTING PRODUCTIVITY AND PREPARING FOR THE FUTURE OF WORK 22
Technology diffusion has slowed Multifactor productivity level of Germ an firm s, index 20 0 6 =10 0 A. Ma n u fa cturing B. Serv ices 130 130 The rest Best performers The rest Best performers 120 120 110 110 100 100 90 90 80 80 70 70 60 60 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 Note: The Best performers are the top 5% firms with highest productivity within each 2-digit sector . Source : OECD calculations based on ORBIS dataset. 23
Small and medium sized firms lag behind in productivity Value added per person em ployed in SMEs, % of the level of large firm s, 20 14 140 140 Small (20-49 persons) Medium (50-249 persons) 120 120 100 100 80 80 60 60 40 40 20 20 0 0 DEU DNK CHE SWE FRA ITA FIN ESP BEL AUT GBR NLD Note : Large firms are firms with more than 250 employed persons. Source : OECD calculations based on OECD (2017), Entrepreneurship at a Glance 2017. 24
Knowledge-based capital contributes little to productivity growth Contribution of KBC to labour productivity growth, Percentage points, business sector, 20 0 0 -14 0.35 0.35 0.30 0.30 0.25 0.25 0.20 0.20 0.15 0.15 0.10 0.10 0.05 0.05 0.00 0.00 ITA USA FRA GBR LUX GRC NOR DEU PRT NLD EST DNK CZE FIN AUT BEL SWE ESP Source : OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The digital transform ation. 25
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