Avoiding Complacency

Don’t rest on your laurels, OECD warns Germany

Tighten your tie, Germany. There's work to be done. Source: Shutterstock/Jari Hindstroem

The Organisation for Economic Co-operation and Development has good news and not-so-good news in its latest report on Germany. The new government in Berlin, still divided on migration and slow to implement its policy pledges, would be well advised to listen.

First the good news. Despite Donald Trump’s protectionist trade policies and a weaker-than-expected first quarter, the OECD is sticking to its GDP growth forecast of 2.1 percent for this year and next. And Germany is above average when looking at the 34 developed countries in almost all indicators of the OECD’s “Better Life Index,” which tracks economic data and conducts surveys on the quality of life: Wages are rising, there are enough jobs, crime is low, environmental standards are high and the government coffers are brimming.

“Economic growth is robust and prosperity is high,” the OECD said in the report. “Germany enjoys high living standards.”

Germany's biggest weakness is its sluggish productivity growth, the OECD says

So far,so good. But the OECD warned that Germany is putting its future prosperity at risk by not investing enough. The country spends less on kindergartens and primary schools per capita than the average of developed nations measured by the OECD, and isn’t giving older employees the training they need to adapt to new technologies.

It added that the government has done too little to prepare the country for the digital economy. Germany lags behind other countries in introducing e-government and its high-tech infrastructure isn’t up to speed compared with rival economies.

“There are three areas the government should focus on: digital, the quality of jobs in the service sector and reducing the high current account surplus,” OECD Secretary-General Angel Gurria told a news conference in Berlin.

Tax cuts for low-wage earners would boost consumer spending and imports, he said. Germany’s biggest weakness, he added, was its sluggish productivity growth which has fallen from 2 percent in 2000 to 0.7 percent now. That’s a further reason for Germany to invest more in technology and startups, he said.

There's little sign of a digital push from Angela Merkel's new government

The overall message is as simple as it is encouraging: If the German government steps up its investments in the digital economy and switches its focus from its strong export sector to its weaker service sector, the country needn’t worry about its future prosperity.

After four consecutive years of budget surpluses, the government has ample cash to invest in high-speed internet connections and e-government, to ease the tax burden on low earners and to promote training of low-skilled workers. That’s crucial because digital change will transform 37 percent of all jobs, according to an OECD estimate.

To be sure, Chancellor Angela Merkel has made readying Germany for the digital economy her top priority in her current fourth term. But after three months in office, there’s little sign of the digital push her new government, an unhappy alliance with the center-left Social Democrats, has promised.

Donata Riedel is an economics and telecommunications correspondent for Handelsblatt. David Crossland adapted this story into English for Handelsblatt Global. To contact the author: riedel@handelsblatt.com

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