Today, Destatis released the 2015 GDP figures for Germany. The economy grew by 1.7% in 2015, though in calender-adjusted terms — 2015 had more working days in Germany — it is just 1.5%.
The good news
Germany’s economy is growing thanks to the domestic economy. 1.5% of the 1.7% growth came from domestic sources such as consumption and investment. Private consumption grew by 2%, government consumption by almost 3%. Net exports contributed only 0.2% of the 1.7% growth.
The bad news
Net exports are still growing. If the eurozone is ever to rebalance and manage robust, sustainable growth, Germany must import more (by investing and spending more). In other words, import growth must outstrip export growth, net exports must therefore fall (“be a drag” on growth, in analystese, even though that is misleading).
Germany is facing a very favourable economic environment: very low interest rates and a low currency, big real wage increases because of low inflation and low energy prices, and mildly expansionary fiscal policy on the back of rising tax revenues and falling funding costs. Given these circumstances, 1.5% growth is nothing to write home about.
Productivity growth is not recovering. Germany’s output per hour worked increased by just 0.5% — similar to previous years. Before the crisis, productivity grew by around 1.8% on average, but has more or less flatlined since.
Germany does not seem to care that much about productivity, however. The big debates in the US or the UK about low productivity growth are all but missing in the German press. In part that is understandable: Germany is happy to see the economy and employment grow, given the memories of past mass unemployment and the influx of migrants. As long as the headline numbers are good — and they determine tax revenues — productivity is secondary.
But there are good reasons for why Germany, especially Germany, should care about productivity. While its population is currently growing, it is bound to shrink at some point, and a declining number of hours worked need to produce all the goods and services that an ageing population requires.
Productivity growth also requires two inputs that Germany has largely refused for a decade: public investment and structural reforms. With current low financing costs, Germany (private and public) should be investing strongly to raise productivity. Rather than reporting on the “big increase in GDP” (Süddeutsche Zeitung), the German press should get serious about productivity growth, and what Germany needs to do to foster it.
PS: Martin Sandbu discusses the post in his Free Lunch column at the FT.