The industrialized nations organization OECD has once again revised downwards its forecast for economic growth in Germany. For the current year, the OECD economic experts only expect an increase of 0.2 percent, as can be seen from the economic outlook published in Paris.

The Organization for Economic Cooperation and Development (OECD) had already lowered its growth forecast for Germany in an interim report in February. Instead of the 0.6 percent assumed in November, it assumed an increase of 0.3 percent. For the coming year, the OECD expects the German economy to gain more momentum and an economic increase of 1.1 percent.

What inhibits growth?

The organization sees uncertainty regarding planned tax incentives for “green” investments as a major obstacle to growth, after the Federal Constitutional Court declared the reallocation of 60 billion euros in the 2021 budget to the Climate and Transformation Fund to be null and void. This is putting a strain on investors’ confidence. High interest rates have also depressed investments in the housing market, among other things.

The OECD is expecting stable growth in German exports for the coming year. Declining inflation and rising wages have already led to more purchasing power and increasing private consumption, which is benefiting the economy. According to the OECD forecast, private investments will gradually pick up again – also as a result of new supply chains, digitalization and the expansion of renewable energies.

What should Germany do?

In order to increase private and public investments, the OECD believes Germany should further digitalize its administration and reduce administrative burdens. The experts also recommend more flexibility in tax rules. Greater efficiency in public spending and less environmentally damaging tax spending would create scope to address the major infrastructure backlog and promote “green” investment. To combat the shortage of skilled workers, the OECD recommends more incentives for women, older people and low earners. In addition, training and further education should be improved.

Globally, the OECD expects growth of 3.1 percent this year and 3.2 percent next year. In the euro area, it assumes growth of 0.7 percent and 1.5 percent respectively.

The Paris-based OECD brings together countries that are committed to democracy and a market economy. In addition to large economies such as Germany, the USA and Japan, emerging countries such as Mexico and Chile are now members.