Remarks by Angel Gurría
12 June 2018 - Berlin, Germany
(As prepared for delivery)
Ladies and Gentlemen,
It is a pleasure to be here today to launch the 2018 Economic Survey of Germany. The Survey is the output of fruitful cooperation between the German government and the OECD.
Germany’s track record is remarkable. Growth has been solid for years, and is set to remain so – we project 2.1 % growth this year and next. As a strong exporter of capital goods, Germany is benefitting from the global recovery of trade and investment. At 3.4% unemployment is at a record low – allowing real wages to grow and sustaining consumption.
Moreover, wages have grown across the board, breaking the trend of rising inequality, and poverty is lower in Germany than in most OECD countries. Germany is also providing many jobs to immigrants, now mostly from Europe.
One shadow in the bright picture is that many workers, especially women, are still on low wages. It is good news that they are in employment, but workers stuck in low-wage jobs are exposed to high poverty risks, and too many low-quality jobs can hold back growth.
During the years of strong performance the government and companies have run up financial surpluses to reduce debt. Households also continue to save, in part for old age. The external counterpart of this saving-investment behaviour is a large current account surplus. Global imbalances can create instability. They have also been used as a rationale for protectionism. Trade tensions are a major risk for the global recovery.
The Survey points to policies that will build on the strong outcomes in many areas while doing more to reduce inequality, poverty risk and external imbalances, taking into account some challenging circumstances.
Key among these is that productivity growth has slowed, from an annual average of 1.8% from 1997 through 2007 to 0.7% over the following decade. Germany is not alone in this respect: the slowdown in the rest of the OECD was 0.4 percentage points greater. But reviving productivity growth is a central challenge. New technologies must be exploited faster and more broadly so as to yield more widely-shared income gains and to combine strong growth with decarbonisation of the economy. This requires adapting to new jobs, often with different skill requirements. Technological change obliges workers to adapt throughout their life time.
The Survey argues that the new government should use the strong position of the economy to respond to these challenges. Boosting investment in skills and technology would also help reduce the current account surplus. The strong fiscal position provides room to fund spending priorities that will durably raise growth and well-being. The coalition agreement contains welcome steps in this direction.
As elsewhere in the OECD, productivity has increasingly diverged between leading firms and others. In Germany, SMEs are 20-30% less productive than large firms and business creation has slowed.
There are several things that government can do.
First, as it is often young firms which introduce new technologies, the government can encourage start-ups. It would help to have more female entrepreneurs; the number in Germany is low compared to many other advanced OECD countries.
Second, while Germany’s insolvency regime is relatively efficient, high personal costs in the event of business failure discourage high-tech startups, which thrive on trial and error. One way of making the insolvency law more innovation-friendly would be to make it easier for entrepreneurs to be discharged of outstanding debt within 3 years.
Third, expanding e-government services can reduce red tape. Better access to high-speed Internet is essential in allowing firms and individuals, including in remote areas, to adopt data-intensive technologies. The government’s commitment to invest in gigabits network is welcome.
New technologies like digital platforms are leading to increased non-standard work arrangements, including self-employment. This reinforces the case for extending social safety net coverage to the self-employed.
Germany is committed to reducing greenhouse-gas emissions. But transport emissions have increased. Transport infrastructure should be consistent with emission-reduction needs, including by expanding the electric charging infrastructure for cars. Promoting smart-ICT-based ride sharing, coupled with congestion charging, can facilitate the low-carbon transport transition, help deploy public transport more cheaply, boost the attractiveness of cities and improve health.
Technological change increases the demand for skills. The cognitive and digital skills of German adults are above the OECD average, but fall short of leading countries.
Enhancing education opportunities for people disadvantaged by their socio-economic background also expands economic opportunities. Progress has been made, as improved PISA scores and rising childcare enrolment show. But there is scope to go further by ensuring that high-quality childcare, early childhood education and full-day primary schooling are available to all.
OECD work suggests that about 17% of jobs in Germany are exposed to risk of automation, with another 37% facing risks of significant changes in tasks. The vocational education and training system does well at integrating young people in the labour market. However, on average, earnings among vocational graduates increase little with experience, in contrast to the pattern for university graduates. Strengthening general education within the vocational system, together with stronger incentives to participate in life-long learning, would help ensure adaptability in the face of technological change.
More modular life-long training programmes, combined with recognition of skills acquired on the job, can increase participation in life-long learning, as the experience in Denmark and Portugal suggests. Government support for labour-market-relevant life-long learning should focus on the low-skilled, who are often unable to take advantage of training opportunities.
Better use of workers’ skills boosts productivity and wages. While Germany’s women are as highly educated as men, their skills – for example in problem solving – are used less. Barriers keeping women in part-time employment explain much of this difference. More full-day childcare and primary education will help to redress this situation, as would better incentives in the tax system. Better incentives for men to look after children can also help counter traditional gender norms.
Ladies and Gentlemen,
Germany is a pivotal economy in Europe and an important one in the global context. It is a leader, a bulwark of multilateralism and a benchmark for many other countries. It is therefore an essential task for the OECD to help Germany build on its successes and address risks and challenges, by helping your new government design, develop and deliver better policies for better lives in Germany. Thank you.