Germany's export-driven economy will reach pre-crisis levels in 2011 but Berlin must implement reforms to achieve better balanced growth, the Organisation for Economic Co-operation and Development (OECD) said today.
The OECD said Europe's largest economy would grow by 3.5 per cent this year and 2.5 per cent next year, driven by an upturn in global trade and bolstered by rising consumer demand as disposable incomes rise sharply.
But with the current account surplus set to rise to around 6 per cent of GDP in 2011, economic growth remains imbalanced.
"A more balanced growth outcome could be achieved by implementing structural reforms that would raise
domestic investment spending," the OECD said in its twice-yearly Economic Outlook, advising Berlin to ease regulation in the services sector.
Germany has come under fire during this year's euro zone debt crisis, accused of undermining the fiscal
stability of its single currency partners with policies that depress spending at home and undercut competitors on export markets abroad.
However, private consumption has picked up thanks to a resilient labour market that saw unemployment fall to an 18-year low in October.
"As the unemployment rate will fall further ...and working hours continue to normalise, wages per employee are likely to rise substantially," the OECD said.
"As inflationary pressures are projected to remain moderate, real disposable incomes are set to increase markedly, supporting private consumption spending."
The OECD also said that, in view of an ageing population and a lack of skilled labour, Berlin should reform the education system and increase high-skilled immigration.
The German Chamber of Industry and Commerce says the country lacks about 400,000 skilled workers and should take in more from abroad. Chancellor Angela Merkel's cabinet, however, is divided over whether to relax rules on immigration.
German public finances were set to improve in 2011, the OECD said, and the headline deficit could even fall below the European Union's target of 3 per cent of GDP. Budget consolidation would only have "moderate adverse growth effects" in 2011, although the phasing out of the government's infrastructure spending would weigh on construction activity.
Reuters