Country Study: Raising Germany’s growth potential

In 2006, German GDP grew strongest since 2000, which has led to a turnaround in public finances and unemployment. The aim of this study is to analyse whether the currently strong economic outlook may announce a lasting period of stronger growth or whether it is merely a cyclical swing around a continuing feeble trend of potential growth. The analysis therefore focuses less on the most recent movements in indicators but rather on the nature of longer-term structural changes that have occurred over the past years.

The study shows that, in spite of the drag from reunification progressively easing, there are multiple factors holding back Germany's potential growth. It uses a growth accounting approach to shed some light on the causes of low labour force participation and high unemployment, identifies financing and tax obstacles to investment, and looks at ways to boost productivity via technology, specialisation and the supply of qualified human capital. The study argues that there are more benefits to be reaped by a comprehensive reform agenda.