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OECD Economic Surveys: Germany 2006

image of OECD Economic Surveys: Germany 2006

This 2006 edition of OECD's periodic survey of Germany's economy finds economic activity still weak and uneven, and recommends reforms in a number of areas. Special chapters cover regaining fiscal credibility and improving public efficiency; improving the education system, gaining flexibility in the labour market, and opening up competition in services and network industries.

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Assessment and Recommendations

German economic performance continues to be marked by strong exports, reflecting many years of trend improvement in external competitiveness, but persistently weak domestic demand. To some extent these two trends are linked. Wage moderation, while strengthening competitiveness, has meant weak household income growth, holding back consumption; and lower inflation than in other euro area countries has raised the real interest rate in Germany, while the absence of exchange rate movements due to the single currency is likely to have supported exports. Signs of a pick up of domestic demand have emerged, and soft data on business confidence and incoming orders signal that the recovery may become broader in the near future. However, hard data from quarterly GDP statistics indicate that this process was not yet firmly established until the end of 2005. Overall, the OECD projects that real GDP will grow somewhat above potential in 2006, at around 1¾ per cent, after growth of 1.1% in 2005 (working day adjusted). Continued structural reform can contribute to stronger domestic activity and would improve the capacity of the economy to turn favourable external impulses into higher growth and employment.

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