Wolfgang Schäuble, Germany's powerful finance minister, last Friday called for the ECB to raise interest rates but the Organisation of Economic Cooperation and Development (OECD) in its latest survey of Germany, said the government had failed to take advantage of cheap borrowing costs to boost investment that is essential to longer-term economic growth.

 

“There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem,” Dr Schäuble said, comparing the move away from easy-money policies to ending a drug addiction.

While the European Central Bank (ECB) in recent weeks ramped up bond-buying and cut its benchmark interest rate to zero, German savers are critical of the low rates earned from savings accounts.

“I am not happy about low interest rates. I would prefer higher interest rates,” Schäuble said in Kronberg near Frankfurt late Friday at a prize ceremony organised by a German economic think tank and reported on by The Wall Street Journal.

The finance minister said he would meet Mario Draghi, ECB president, this week-end at the IMF-World Bank spring Meetings in Washington DC, to discuss how to counter the growing criticism of ECB policies in Germany.

Peter Praet, the ECB’s chief economist, on Thursday rejected criticism from Germany arguing that its actions since June 2014 have “led to a substantial easing of financial conditions” that supported economic growth. Without them, Eurozone inflation would have been around half a percentage point lower in 2016 and 2017 than the ECB currently forecasts, excluding the measures adopted last month, he said.

“[They say] money is worthless,” Praet said of the ECB’s critics. “Thank you very much, give it to me if it is worthless,” he added according to the Journal.

The OECD forecasts that the German economy which accounts for about 28% of Euro Area GDP, will grow 1.3% this year in work-day adjusted terms, and 1.7% next year. But it said the disposable incomes of poor households had not grown in real terms in the last decade.

"This suggests that the fruits of growth and the fruits of investment are not being shared by all," Angel Gurría, secretary general of the OECD, told a news conference in Berlin.

"These challenges will increasingly come to the fore as Germany seeks to integrate the one million humanitarian immigrants that sought asylum in 2015," he said, adding that this posed both a formidable challenge and opportunity.

On investment, the OECD highlighted a weakness in investing in 'knowledge-based capital' — spending on intangible assets such as intellectual property, software and management skills — where it said Germany lagged other leading economies.

However, in modern times, manufacturing innovation includes intangible assets and the Fraunhofer Society (Fraunhofer), which is a key applied research institution, converting basic research and nascent technologies into viable commercial products has 67 institutes and 23,000 employees in Germany as well as an international presence that includes seven US-based centres.

Manufacturing in Germany accounts for 20% of employment, nearly twice the share as in the United States, and generates 22% of national GDP and 82% of total goods exports. German manufacturing succeeds in the global marketplace even as the sector pays higher average wages than in the United States according to the Brookings Institution.

Deutsche Bank economists this month said on the German economy:

According to our and consensus expectations Germany will record 4 years (2014-2017) of above potential GDP growth in an extremely narrow range of 1.5% to 1.7%, despite substantial shocks and massive swings in growth drivers. If growth breaks out, a downside move seems more likely than higher growth. The economic slowdown in the oil-producing countries due to the falling oil price also carries implications for the German economy in terms of its foreign trade. Although the overall effect is positive for the German economy, German exports to oil-producing countries remain under pressure. Capital spending on residential construction has been growing sluggishly in recent years. The main reasons are: a shortage of building land, increased regulatory hurdles in virtually all construction sectors, high construction costs and a lack of skilled workers in the construction industry.

Pic on top: Presentation of the Economic Survey of Germany 2016: 5 of April 2016 - Angel Gurría, secretary general of the OECD with Angela Merkel, chancellor of Germany. Berlin, Germany.