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German Economic Growth Will Be Impeded Without New Reforms

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A period of strong economic growth will come to an end if the German government isn’t quick to implement changes that will spark a new era of growth to keep the country competitive. Analysts are concerned that the economy, which posted its best growth rate last year in half a decade, is about to dip in 2017 and 2018, if new policies are not introduced. Consumer spending has had a large and sustained impact on the economy, but wage growth has reached a plateau, and inflation is on the rise, both of which will have a negative impact on spending. Germany grew by 1.9 percent last year, spurred on by consumer spending, investments in construction and government spending on refugees. The export industry, which has always fuelled growth, is in for a rocky year, due mainly to Brexit and the problems facing the British economy, and the protectionist policies expected to be put in place by Donald Trump.

Analysts forecast a growth of between 1.4 percent and 1.5 percent over the next two years, with inflation poised to hit 1.6 percent this year. Private and public consumption will have a marginal rise this year, as real wages for employees on collective agreements rose lower last year than the previous two years. Germany has prospered as a result of the policies by German Chancellor Gerhard Schroeder’s administration, before Angela Merkel took office. He introduced policies that helped firms hire labour easier, while also reducing income tax. The consensus now is the policies have served their purpose, but new ones are needed to kick-start another season of growth. On the agenda is improving the country’s infrastructure and improving its digital competencies. Global demand is shifting from manufacturing to services, an area Germany is lacking in. Without drastic changes made this year, it is feared that the powerhouse of Europe will fall behind.

 

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