The Rise of Wages in Germany Threatens Economic Growth


During the last decade, Germany’s development could be described as Wirtschaftswunder (in translation means “Economic wonder”) once again.  The largest economy in the European Union at a high-speed rate mostly thanks to the growth of its exports, which resulted in the surplus of the country’s budget – Germany has been one of the few countries that have experienced a budget surplus in the last decade. Moreover, the German economy grew at the fastest pace of the last 6 years at the end of 2016, which gave a hope for the further sustainable development.

However, this boom of the German economy was a result of the rise of domestic consumption – unlike the previous years, when the growth was supported mostly by exports. What causes even more worries is that, after a noticeable rise in wages and the implementation of the minimum wage law, the wage growth seems to be getting stuck. This, along with a growing inflation, leads to the fall in of purchase power of consumers and threatens the economic growth, which is getting more and more reliable on the domestic consumption.

economic growth in Germany

The experts warn that the government has little time to deal with the current infrastructure issues

On the other hand, a noticeable growth of wages during the last couple of years threatens the competitiveness of German companies in international markets, as the cost of labor grows. Furthermore, the country’s exports may be weakened due to the global political uncertainties like the election of Donald Trump along with his threats to impose more trade barriers and Brexit. In such a situation, the growth of the German economy, which has been the powerhouse and an economic engine of the EU for the last five years, is under threat.

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Even though the German economy grew by 1.9% in the last year, many analysts have modest forecasts about the future growth. Reuters, a news agency, has polled economic analysts, who estimate Germany’s growth to be lowered to 1.4% in 2017 and slowly rise to 1.5% in 2018. Timo Wollmershaeuser, an economist at the lfo Institute, said that both public and private consumption will not rise as much dynamically in 2017. One of the reasons he named is the recovery of oil prices, which fell sharply during the last several years.

Carsten Brzeski from the ING Group pointed out that “the real wages will barely grow as well as the interest rates cannot be cut even more, leading to the lack of stimulus to spending. This will naturally cause the slowdown of the economy’s growth.”

The majority of economists in Germany and beyond agrees that there are a number of changes that have to be made in order to sustain the economic growth. Namely, it is going about the improvement of Germany’s infrastructure, maintaining the pension system for an increasingly aging German population, and tackling the issues connected with the digitalization. Another suggestion is to abolish tax incentives that let parents stay at home, thus increasing the participation of females in the economic activities. Among other demands, there are demands for a better internet connection and digital infrastructure as well as for better teaching of English to German kids.

Business leaders and economic analysts point out that if these issues are not dealt with in time, the era of a rapid economic growth risks to faint.


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