Openness of the German economy dampens wage growth
Just like the Phillips curve, the relationship between the output gap and inflation
is a national concept, which does not sufficiently take into account the fact that
the German economy in particular has become more and more integrated into
global trade.
Imports amounted to 39.7% of German GDP in 2017. Intra-
industrial trade makes up a large share of this total, which means that domestic
output may be substituted to a large extent by imports. As capacity utilisation in
key trade partners (particularly in the euro area) has been much lower up until
recently, German producers have experienced considerable actual and latent
competition from imports. This has put a lid on wages even though
unemployment in Germany has declined markedly.
EU Forecast
euf:ba1.8i:137/nws-01