German economy “hit hard” by global slowdown, IMF warns

The IMF warns that Germany’s economic growth is being held back by a global slowdown and the country needs to rebalance its economy. 

After re-assessing Germany’s economic performance, IMF warned: “The export-dependent economy has been hit hard by the slowdown in global demand.”

The report states: “The country’s export dependence and financial openness make it particularly vulnerable to external shocks. Rising global protectionism, a more pronounced China slowdown, or a no-deal Brexit would hurt exports and investment.”

Current global financial conditions could be the driving force behind sharp corrections in overvalued asset classes. The medium-term outlook doesn’t look promising. Low productivity growth, aging demographics, and the energy transition are expected to slow down growth.

After several years of GDP growth, which averaged over 2% annually, Germany’s economy slowed down in the second half of 2018. GDP growth is expected to pick up by the end of 2019, with a projected growth of 0.7% and 1.7% in 2020.

The IMF did note the strong economic performance, record low unemployment and good balance sheets over the past decade. However, the slow adaptation to technological changes and digitalization held Germany back. The energy transition is uncertain for business investments.

Germany’s account surplus after 2011 came from rising savings by firms along with fiscal consolidation. In the last two decades, unemployment fell, exports went up, but wage growth lagged and households spending power tightened.

National income is in the form of profits held by firms owned by wealthy households, while lower incomes stalled.

The report states: “Germany’s key economic challenge is to raise its long-term growth potential while rebalancing its economy”

IMF Report

Wage growth and lower taxes would help to boost the economy.

Should you invest in Germany?

Some of the good reasons investors might consider investing in Europe and German stocks is:

  • A large market
  • Strong innovation
  • Highly developed infrastructure
  • Open market
  • Central location
  • Legal security
  • World-famous trademark (made in Germany)

While investors might be cautious, Germany is still one of the world's strongest economies and a great option to look into when looking for great investments:

  • Germany has 277 international patents per one million inhabitants – which is more than anywhere else. 
  • Germany has highly Qualified Personnel.
  • More than 7 million foreigners live in Germany, which is great for international business.
  • Germany is a modern state with transparent and reasonable laws. The German legal system served as a template in other countries.
  • Over 22,000 foreign enterprises established businesses in Germany, employing more than 2.7 million people.
  • With a GDP of more than 2.2 trillion euros, it is the largest economy in Europe and third in the world.

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