After years of subdued growth and weak demand, Germany may now be in a position to enjoy a robust recovery. Further progress in economic reforms could turn this cyclical upswing into a sustained expansion, with stronger supply conditions and higher permanent incomes feeding back into more buoyant current demand. The challenge confronting Germany in this context is to improve its performance in a variety of areas – generating higher employment and productivity growth, securing the sustainability of public sector finances – while at the same time preserving what could well be a genuine recovery extending beyond the export sector. For this end, a comprehensive strategy is required. Public sector expenditure control should be linked to public sector reform. Labour market reform needs to be deepened and broadened in order to reduce hurdles to labour supply and demand. Increasing the efficiency of the education system is important to reinforce Germany’s growth potential and secure living standards in the future. Furthermore, strengthening product market competition helps to raise productivity growth and implies a redistribution of real incomes in favour of consumers.