MOSCOW (Sputnik) – Germany’s economic fundamentals are sound but its long-term growth is under threat and needs to be bolstered by lower taxes and stronger digital strategy, the International Monetary Fund said Friday.
“From a longer-term perspective, Germany’s population is ageing and its technological edge is being challenged, while lower incomes have remained stagnant,” the annual assessment read.
Germany’s account surplus reached 7.3 percent of its gross domestic product last year. Its fiscal position, the IMF said, is expected to remain well within the recommended limits this year.
“These budgetary resources should be deployed from 2020 onwards to strengthen the economy by promoting innovation, expanding labour supply to counter population ageing, and continuing to fill infrastructure gaps,” the IMF said in the paper.
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It suggested cutting taxes for low-income families. On top of this, faster wage growth could help accelerate real exchange rate appreciation and speed up external rebalancing, the fund said.
“Additional tax relief for low-income households would, alongside continued wage growth, boost their disposable income and consumption, supporting rebalancing,” it stated.
The IMF warned that Germany’s technological edge was being challenged by relatively low high-speed Internet coverage, while a slow rollout of emissions tests for cars reflected decreasing external demand.
A huge scandal around the Volkswagen Group, which includes the Audi, Bentley, Porsche AG, SEAT and Skoda brands, originally arose in September 2015, when the US Environmental Protection Agency accused the company of using software to falsify emission test results for its diesel-engine cars. The company admitted that 11 million of its vehicles worldwide had been fitted with such software and agreed to pay $15 billion in settlement. The US government obliged the company to recall nearly 500,000 Volkswagen and Audi cars manufactured in 2009-2015 equipped with emissions cheating software.