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More Growth through Higher Investment

DIW Weekly Report 8 / 2013, S. 5-16

Stefan Bach, Guido Baldi, Kerstin Bernoth, Björn Bremer, Beatrice Farkas, Ferdinand Fichtner, Marcel Fratzscher, Martin Gornig

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While many countries in the euro area are deep in recession due to a debt and structural crisis, the German economy appears to have excelled compared to many other euro area countries. Unemployment has fallen to the lowest level since German reunification, economic output has grown by over eight percent since 2009, and public budgets have been consolidated, generating a surplus in 2012. But this is no cause for euphoria. On the contrary, if one looks at Germany's economic development from a more long-term perspective, we can see that the country is lagging behind in many areas compared to most EU member states and most euro area countries. Since 1999, the euro area countries have on average achieved more economic growth than Germany and this increase in competitiveness can be largely attributed to wage moderation rather than productivity growth. The rate of investment has been falling for a long time and is very low by international standards. The estimations in this study indicate that Germany has had an annual investment gap of three percent of GDP, on average, since 1999. This means that Germany needs to invest substantially more in order to reduce the investment backlog accumulated in recent years and also to ensure higher potential growth and prosperity in the long term.

Kerstin Bernoth

Vice Dean of Graduate Studies in the Graduate Center

Guido Baldi

Research Associate in the Macroeconomics Department

Stefan Bach

Research Associate in the Public Economics Department

Martin Gornig

Research Director in the Firms and Markets Department

JEL-Classification: E21;E22;E23;O47
Keywords: Public and private investment, potential growth, net foreign assets
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