OECD says Germany on the right path

Nation's economy rebounding well from pandemic and other challenges

Germany's tentative economic recovery has been given encouragement after a newly-released report from the Organisation for Economic Co-operation and Development, or OECD, said its GDP is on course to grow by 0.3 percent this year, and by 1.3 percent next year.

In addition, inflation, which was 7.4 percent in March, is expected to average at 6.6 percent for the year.

With the country still dealing with the lasting impact of the novel coronavirus pandemic and the challenges posed by an energy crisis, as well as inflation hitting consumer spending, the OECD's Economic Survey of Germany, which was released on Monday, said economic uncertainty remained high, but "despite weakening external demand, export growth will recover through 2023 due to easing supply chain bottlenecks and a record-high order backlog".

"After a decade of strong export-led growth, decreasing unemployment, and fiscal surpluses, the COVID-19 pandemic and the energy crisis have revealed structural vulnerabilities and emphasized the need for accelerating the green and digital transitions," the report said.

An aging population was identified as an additional economic challenge, with improvements to training and encouragement of skilled immigration highlighted as possible remedies.

"Reducing labor taxes, particularly for low-skilled workers and second earners, facilitating skilled migration, and improving education and training are key to raise labor supply," it said.

OECD Secretary-General Mathias Cormann said at the report's presentation in Berlin: "Germany needs to speed up its green energy transition and the digital transformation of its economy and public administration.

Cormann, who appeared alongside Germany's Economy Minister Robert Habeck and Environment Minister SteffiLemke, added: "At the same time, rapid population aging is exacerbating labor shortages and increasing spending pressures. Tackling these challenges effectively in a fiscally sustainable way will require well prioritized and well targeted public investment."

Green measures have a big role to play in the recovery, with increases in sustainable transport and green research and development recommended, along with carbon pricing, to support vulnerable households and protect social cohesion.

On the same day, the OECD also published its Environmental Performance Review of Germany 2023, which praised the nation's advances in environmental protection during the past decade but said measures to address the challenges of energy needs, climate change, and biodiversity need to be sped up.

The Green Party is a coalition partner in Germany's government and the report praised the country for having "ambitious climate targets with the aim to reach climate neutrality by 2045 and achieve negative emissions after 2050".

It applauded "measures which are historic in size and scope" to deal with the energy crisis, but made 28 recommendations for further steps that could be taken.

Germany is Europe's biggest and most influential economy, so its health has major international implications, and one of its biggest concerns at the moment is a skilled labor shortage. The latest OECD rankings show Germany has slipped to 15th place in the world when it comes to its ability to attract skilled workers, not because it has done anything regressive, but because other countries have made more progress, the report said.

"It is now a problem that exists across industries," Stefan Hardege, labor market expert at the German Chambers of Commerce, told German broadcaster DW.

"A wide variety of professions are affected … when you look at the 2.5 million unemployed people in Germany and you see all these vacancies; the question arises as to why they don't cancel each other out. We often see that the qualifications of the unemployed do not match the qualifications that companies are looking for."