Policies that strengthen stability
Policies that strengthen stability and growth prospects in the euro area would raise the
attractiveness of Germany as a location to invest. Germany should therefore continue to
support efforts to improve growth prospects in the euro area, notably steps to strengthen
the single market and cross-border infrastructure, and complete the banking union. These
steps will strengthen long-term growth, reduce the risk of financial crises, and strengthen
crisis management.
Weak demand growth cannot fully explain why investment spending is especially low
in Germany. Recent empirical research suggests that cross-country differences in cyclical
positions, as well as in structural features, including employment, demography and the
sectoral structure, do not appear to explain why investment in Germany is relatively low
(DIW, HRI, 2014). Moreover, in Germany firms retained large profit and equity buffers,
which typically boost investment (e.g. Schiantarelli, 1996). These findings suggest that
there is scope for improved structural policies to boost investment in Germany.
EU Forecast
euf:ba18a:62/nws-01