2008 OECD Economic Surveys: Germany 2008

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This 2008 edition of OECD's periodic survey of the German economy finds Germany enjoying a vigorous recovery after a long period of stagnation. To keep the recovery going, OECD finds Germany facing a number of key challenges including making the tax system more efficient, making labour market improvements last longer, improving education outcomes, strengthening competition in network industries, and making healthcare sustainable. These challenges are all addressed in some detail in this report.

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Sustaining higher economic growth

Germany has been enjoying a strong cyclical rebound in economic growth after a long period of stagnation. With strong corporate and household balance sheets and government finances having been consolidated, solid foundations have been laid for sustaining the cyclical upswing or at least mitigating the adverse effects of recent global financial market turmoil. Nevertheless, for more enduring high economic growth, it will be necessary to make reforms that raise growth in potential output. A good start in this regard has been made with the labour market reforms of recent years, which have already contributed to the impressive performance in increasing labour utilisation during the current upswing. Even so, there remains considerable scope to increase the total number of hours worked per person of working age. It will also be important to contain the long-run growth in healthcare expenditures as large increases in social security contributions to finance such expenditures would depress work incentives. Strengthening product market competition, notably in network industries, would increase productivity growth, further lifting potential output. Such product-market reforms would also reduce income inequality, contributing to social sustainability. In the long term, improving education outcomes, notably by reducing the impact of socio-economic background on student achievement and increasing the proportion of younger cohorts with tertiary education, will be central to raising potential output and enhancing social equality of opportunity.

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