The European Commission on Wednesday issued 17 in-depth country reviews as
part of its macroeconomic imbalance procedure and it said Germany's current
account has persistently recorded a very high surplus, which reflects strong
competitiveness while a large amount of savings were invested abroad. "It is
also a sign that domestic growth has remained subdued and economic resources may
not have been allocated efficiently."
Olli Rehn, member of the Commission responsible for Economic and Monetary
Affairs and the Euro, said at a press conference: "In
Germany, the persistently high current account surplus is a sign of strong
external economic competitiveness, which is positive but also implies that a
large share of Germany's income is being invested abroad. In turn, domestically,
both private and public investment has been low for a long time. This poses a
risk to the economy's long-term growth potential. Therefore higher investment in
physical and human capital and opening up the economy to more competition,
particularly in the services sector, would support future growth in Germany, and
to some extent also elsewhere in Europe."
"We stick to our position that Germany's current-account surplus gives no reason
for concern, not for Germany or the Eurozone or the global economy," said
Nadine Kalwey, a spokeswoman for the German finance ministry,
according to The Wall Street Journal.
Rehn said in respect of France that the growing trade
deficit reflects the long-term fall in export market shares. Despite measures
taken to foster competitiveness, so far there is limited evidence of
rebalancing. While wages have developed in line with productivity recently, the
labour cost remains high and weighs on firms' profit margins and weakens
capacity to invest. The low and decreasing profitability of private companies,
in particular in the manufacturing sector, may have hampered their ability to
invest grow and thus improve their export performance.
Rehn said challenges in Italy are compounded by
competitiveness losses which are deeply rooted in long-standing inefficiencies
in many areas of the economy and public administration. The crisis has weakened
the initial resilience of the Italian banking sector and weakened its role to
support the recovery of the economy, as seen in the persistent difficulty faced
by SMEs to access affordable credit.
Germany's 2013 current account at record high in value; Japan's lowest since
Germany's economy accelerated in Q4 2013; Achieved budget surplus in year
Wednesday's report on
Germany [pdf] says that while the surplus with other European countries has fallen since the crisis, that with the rest of the World is on a steep increase . The surplus vis-à-vis the rest of the
Eurozone increased significantly in the years preceding the crisis, explaining almost 60 % of the total current account surplus in 2007 (4.4 % of GDP). Since then, it has nearly halved in absolute terms and in 2012 represented less than one third of the total current account surplus (2.2 % of GDP). The development of the German current account vis-à-vis the
Eurozone is largely explained by declining balances vis-à-vis Spain, Italy and the Netherlands, while the surplus vis-à-vis France continues to increase.
Germany's increasing trade deficit with the Netherlands, which to a large extent is due to an increasing deficit in oil products, has been partially offset by an improvement in the income balance, and the current account balance has turned again into deficit. The surplus vis-à-vis the rest of the European Union also reached a peak in 2007 and has generally also been receding in recent years, although it continues to rise vis-à-vis the UK. In contrast, the surplus vis-à-vis the rest of the World developed more moderately before the crisis, but has increased sharply in the last years, representing more than half of the total current account surplus in 2012 (3.6 % of GDP).
The report says business investment in buildings and civil engineering facilities in particular has been consistently
low. Low trend growth in Germany, relatively restrictive bank lending conditions in the
beginning of the 2000s and pressure on companies to improve their balance sheet and to earn a higher
return on their investments all reduced the incentive for domestic investment. Nevertheless, the
continued weakness of business investment in recent years is at odds with highly
supportive conditions for capital formation, such as healthy corporate balance sheets, very low interest
rates and a stronger cyclical position. While uncertainty as a consequence of the crisis is one
reason why companies hold back on investment, there is a tangible risk that persistently low
investment by companies could hamper Germany's economic growth in the longer run.
Public sector investment has been falling for a long time in Germany,
resulting in a sizeable investment gap compared to the Eurozone accumulating over time. The
low investment rate in particular reflects the gradual scaling back of public
infrastructure investment, for both maintenance and expansion of infrastructure. This has occurred almost
entirely at the level of municipalities, due also to limited funding, which investment planning
and financing mechanisms have not been able to remedy.
Appropriate conditions should be secured in order to enable wage growth to
further contribute to domestic demand. Real wages have risen in recent years, reflecting
favourable economic and labour market conditions. The new government has announced plans
for introducing a general minimum wage. In detailing the proposal, it will be
important that the level and scope of the minimum wage take into account the potential impact on
Germany is encouraged to ensure that the banking sector has sufficient loss
absorption capacity to withstand economic and financial shocks and to address any
impediments to further consolidation. Full implementation of the new capital requirements and
follow up of the forthcoming comprehensive capital needs assessment will be essential.
An increase in aggregate demand in Germany would raise growth domestically,
but would also entail the additional benefit of helping the economic recovery in the
Eurozone. Potential risks to growth in the Eurozone remain. Countries remain at different
positions in the adjustment process, which limits their ability to contribute to growth.
Spillovers from higher domestic demand in Germany could support overall aggregate demand in the
Eurozone. An increase in German public and private investment and steps to open up and
further develop services and energy markets would have a positive effect on domestic growth,
while at the same time providing a positive impetus to the rest of the
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