OECD sees slower Germany rebound

The German economy is expected to recover more slowly next year than previously forecast, the Organization for Economic Cooperation and Development said on Monday.

Germany's economy is on course to grow by 0.3 percent this year, and by 1.3 percent next year, according to projections released in the OECD's latest economic survey of the country.

In March, the OECD had predicted GDP growth in 2024 of 1.7 percent, Reuters reported. The forecast for this year was unchanged.

The report called on Berlin to speed up its transition toward a more digital and climate-friendly economy, for example by showing more flexibility on its debt rules to allow for necessary investments.

Inflation, which was 7.4 percent in March, is expected to average 6.6 percent for the year.

The report also warned against expansive fiscal policy in order to shield German competitiveness.

"After 10 years of dynamic export-induced growth, falling unemployment and budget surpluses, the pandemic and the energy crisis showed that Germany has structural weaknesses and urgently needs to accelerate its ecological and digital transformation," 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 raising 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 Steffi Lemke, 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, 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 accelerated.

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 economic health has major international implications and one of its biggest concerns at the moment is a skilled labor shortage.

The OECD has downgraded Germany's ranking in the world when it comes to its ability to attract skilled workers.

"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."

Agencies contributed to this story.