COMMISSION STAFF WORKING DOCUMENT In-depth review for Germany in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2022 European Semester – Spring Package
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: European Semester, Germany, economic policy, economic recovery, energy policy, investment, macroeconomics, property market, savings

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 629 final  COMMISSION STAFF WORKING DOCUMENT In-depth review for Germany         in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances      Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2022 European Semester – Spring Package {COM(2022) 600 final} - {SWD(2022) 628 final} - {SWD(2022) 630 final} - {SWD(2022) 631 final} - {SWD(2022) 632 final} - {SWD(2022) 633 final} - {SWD(2022) 634 final} - {SWD(2022) 635 final} - {SWD(2022) 636 final} - {SWD(2022) 637 final} - {SWD(2022) 638 final} - {SWD(2022) 639 final}  
 
 
On the basis of this in-depth review for Germany undertaken under Regulation (EU) No 
1176/2011  on  the  prevention  and  correction  of  macroeconomic  imbalances,  the 
Commission  has  considered  in  its  Communication  “European  Semester  –  2022  Spring 
Package” (COM(2022)600 final) that: 

Germany  is  experiencing  imbalances.  Vulnerabilities  relate  to  a  persistent  large  current 
account  surplus,  which  reflects  subdued  investment  relative  to  savings,  and  has  cross-border 
relevance. The current account surplus declined only slowly until 2020, and increased in 2021. 
It  remains  well  beyond  the  levels  suggested  by  the  country's  fundamentals,  reflecting 
consumption restraint and persistently subdued investment. Corporate investment has remained 
below  the  pre-pandemic  level  and  corporations  have  continued  to  post  strong  net  savings. 
Residential investment has gradually increased from a low level but supply still falls short of 
housing demand. Existing barriers, including administrative ones, constrain public and private 
investment. The current account surplus is likely to remain elevated even if expected to decline 
somewhat in 2022 on account of higher commodity prices. Recent announcements to promote 
investment  are  promising  and  the  RRP  is  geared  towards  addressing  investment  bottlenecks. 
Still,  further  resources  and  efforts  to  tackle  investment  bottlenecks  as  well  as  thorough 
implementation are key for promoting investment further.    

1 

 
 
 
 
 
 
 
 
CONTENTS 

1.  Introduction 

2.  Assessment of macroeconomic imbalances 

3.  Thematic chapter: investment needs and bottlenecks 

LIST OF TABLES 

Table 1:            Selected house market indicators 

Table b.3.1: 

Selected exposures 

Table 2.1: 

Selected economic and financial indicators (Part 1), Germany 

Table 2.2: 

Selected economic and financial indicators (Part 2), Germany 

Table 3.1: 

Net investment stock by sector, in 2019 compared to 2000 

LIST OF GRAPHS 

Graph 2.1: 

Savings and investments by sector and the resulting net lending/borrowing 

Graph 2.2: 

Investment by institutional sectors 

Graph 2.3: 

Household, labour and consumer perspective 

Table 1:            Simulation results of public investment programme scenarios 

Graph b.3.1:  Sectoral distribution of energy use and of energy imported from Russia 

Graph 3.1: 

Investment share of GDP by type of asset: difference from EU average, 2000-2021 

Graph 3.2: 

Net investment by government subsector 

Graph 3.3: 

Net fixed assets in power generation and distribution (NACE D) 

Graph 3.4: 

Housing completions, cost of construction, net balance sheet value of housing 

3 

4 

16 

8 

13 

14 

15 

17 

4 

5 

6 

11 

13 

16 

17 

20 

21 

2 

 
 
 
 
 
 
1.  INTRODUCTION 

In  2021,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic  Imbalances 
Procedure  (MIP),  the  Commission  identified  “macroeconomic  imbalances”  in  Germany. (1)  These 
imbalances  were  related  to  a  subdued  level  of  investment  relative  to  savings  reflected  in  a  persistent 
current  account  surplus,  and  had  cross  border  relevance.  The  2022  Alert  Mechanism  Report  concluded 
that a new in-depth review (IDR) should be undertaken for Germany with a view to assess the persistence 
or unwinding of imbalances. (2) 

The  German  economy  faces  headwinds  from  trade  disruptions,  as  well  as  a  surge  in  inflation 
following Russia’s invasion of Ukraine. Effective policy support helped to cushion the economy during 
the COVID-19 crisis. Real GDP declined by 4.6% in 2020, less than in the EU and the euro area. Public 
investment increased by 6% in 2020, cushioning the shortfall in overall investment. Recurrent pandemic 
waves and persisting shortages of key raw materials and supplies kept the GDP rebound more moderate 
than in the rest of the euro area at 2.9% in 2021. Exports proved relatively resilient to the slowdown in car 
manufacturing  as  the  value-added  per  car  increased.  Continuous  disruptions  in  supply  chains  and 
Germany’s  relatively  strong  dependence  on  international  trade  and  Russian  gas  are  a  further  drag 
following  Russia’s  invasion  of  Ukraine.  There  is  upward  pressure  on  costs  and  prices,  in  particular  for 
energy,  with  inflation  (HICP)  at  7.6%  in  March  2022,  its  highest  rate  in  more  than  four  decades. 
Domestic  demand  in  2022  should  benefit  from  additional  public  investment,  and  discretionary  fiscal 
measures announced to respond to the effects of the Russian aggression against Ukraine are expected to 
cushion  the  economy.  Along  with  a  commodity  price  shock,  such  staggered  demand  may  contribute  to 
narrowing the current account surplus somewhat in the short run, but is unlikely to represent a structural 
change. Overall, the current account surplus remains elevated and is expected to stay above 6% of GDP. 

This in-depth review presents the main findings for the assessment of imbalances. , The assessment 
is  backed  by  a  thematic  section  on  investment  needs  and  bottlenecks  to  public  and  private  investment. 
Spillovers and systemic cross-border implications of imbalances are also taken into account, including the 
spillover  effects  of  the  government’s  fiscal  spending  plans  on  other  Member  States.  In  addition, 
assessments from previous IDRs and in the context of fiscal assessments are also considered if relevant. 
The MIP assessment matrix is published in the 2022 Country Report for Germany. (3) 

(1)  European Commission (2021), European Semester Spring Package 2021, COM(2021) 500 final, 02.06.2021. 
(2)  European Commission (2021), Alert Mechanism Report 2022, COM (2021) 741 final, 24.11.2021. 
(3)  European Commission (2022), Country Report Germany 2022, SWD(2022)607 final, 23.05.2022. 

3 

 
 
 
 
 
   
                                                           
2.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Assessment of gravity, evolution and prospects of macroeconomic imbalances 

The  German  economy’s  large  current  account  surplus  reflects  among  others  a  subdued  level  of 
domestic  demand  relative  to  income.  The  persistent  large  surplus  stayed  above  6%  of  GDP  in  every 
year  since  2011  peaking  at  8.6%  of  GDP  in  2015  and  has  been  declining  only  slowly  afterwards.  It 
reflects low demand and the various sectors of the economy were overall net lenders (see Graph  2.1). It 
was only mildly affected by economic fallout of the COVID-19 pandemic, as the exports held relatively 
strong.  In  2021,  it  has  increased  to  7.4%  of  GDP.  Private  savings  (both  household  and  corporate) 
increased,  also  reacting  to  reduced  consumption  possibilities  and  increased  uncertainty,  offsetting  the 
decrease  in  government  savings.  Hence,  although  the  sectoral  composition  of  the  savings  changed,  the 
overall  level  did  not  change  so  much.  The  surplus  continues  to  be  significantly  above  what  can  be 
explained  by  economic  fundamentals, (8)  such  as  Germany’s  demographics  and  high  manufacturing 
intensity, which would add up to a current account surplus of somewhat above 2% of GDP.  

Graph 2.1: 

Savings and investments by sector and the resulting net lending/borrowing 

Source: European Commission services 

The  current  account  surplus  is  expected  to  contract  in  2022  due  to  high  energy  prices  and  trade 
disruption.  The  current  account  surplus  is  expected  to  decline  to  6.4%  of  GDP  in  2022. (9)  Trade 
disruption  and  impaired  supply  chains,  also  associated  with  the  Russian  military  aggression  against 
Ukraine,  are  expected  to  limit  exports,  in  particular  from  the  competitive  manufacturing  sector.  Rising 
commodity prices will additionally depress the external balance (see Box 2.2). Higher costs and prices are 
expected  to  dent  corporate  and  household  savings.  Fiscal  support  measures  are  expected  to  keep  the 
budget in deficit. On the other hand, uncertainty  will lead to consumption and investment retrenchment 
and the surplus would stay significantly above what fundamentals suggest, rebounding to 6.8% of GDP in 
2023. 

(8)  For  a  methodology,  see  Coutinho,  L.,  Turrini,  A.,  and  Zeugner,  S.  (2018):  Methodologies  for  the  Assessment  of  Current 

Account Benchmarks, European Economy Discussion Paper 86.  

(9)  Note  that  this  figure  refers  to  the  current  account  balance  in  balance-of-payments  terms.  The  current  account  balances  that 

German authorities report under the national accounts concepts are slightly lower.  

4 

-6-4-2024681012050607080910111213141516171819202122*23*% of GDPNet lending/borrowing by sectorHouseholds and NPISHGeneral governmentCorporationsTotal economySource:AMECO-5051015202530350809101112131415161718192021% of GDPSavings and investment by sector Government savingGovernment investmentCorporations savingCorporations investmentHouseholds savingHouseholds investmentSource: AMECO 
   
 
                                                           
2. Assessment of macroeconomic imbalances 

The  inability  to  channel  high  savings  to  domestic  investment  has  resulted  in  a  deterioration  of 
capital  stock  which  limited  potential  growth.  Germany  has  the  highest  household  saving  rates  in  the 
EU. (10)  At  the  same  time,  corporate  investments  were  relatively  suppressed,  remaining  below  the  EU 
average and the overall investment rate remained below the EU average. Public investment has been on a 
gradual upward trajectory already prior to the COVID-19 pandemic, but over the past two decades it has 
remained below the EU average (see Graph 2.2), resulting in underinvestment, notably at the local level, 
and  has  dented  the  quality  of  public  infrastructure. (11)  On  top  of  this  investment  backlog,  there  are 
considerable new and increasing investment challenges related to the decarbonisation and digitalisation of 
the economy. Addressing the demand shortfall through rebalancing savings and investments would first 
and foremost improve the allocation of domestic resources and thus increase the potential output of the 
German economy, with positive spillovers to the euro area. (12) 

Graph 2.2: 

Investment by institutional sectors 

Source: Eurostat 

High household savings also reflect income inequality. Germany’s high household saving rate has been 
linked  to  various  factors,  including  “a  specific  German  propensity  to  save”. (13)  At  the  same  time,  the 
high  overall  saving  rate  masks  considerable  differences  across  social  groups.  Microdata  suggests  that 
40% of German households with the lowest income have overall negative or around zero saving rates, and 
the high average saving rate is driven in particular by the highest income groups  – with the 10% of the 
population with the highest income providing for 54 to 65% of total savings, and the 1% of the population 
with the highest income providing for 13 to 37% of total savings. (14) Higher income groups have a much 
higher  propensity  to  save  and  the  increase  in  current  account  surplus  went  hand-in-hand  with  higher 
income inequality at the top of the  income  distribution (see Graph  2.3a). (15) In addition, lower income 
groups  tend  to  save  on  saving  accounts  bearing  low  deposit  rates,  which  limits  long-term  prospects  for 
wealth accumulation and are further away from investment.  

(10)  German households had  the highest saving  rates in the  EU  in  ten  years  out  of  the  eleven  years  from  2010  to 2020.  In  2019, 
German households had a gross saving rate of 18.4% compared to an EU average of 12.2%, while in 2020 the rates were 23.4% 
and 18.3%, respectively.  

(11)  For further details, see the thematic chapter on persistent investment needs and bottlenecks. 
(12)  See  Box  2.2  in  this  report,  and  spillover  analyses  in  earlier  In-Depth  Reviews  including  Box  3.2  Spillovers  of  a  sustained 
increase  in  public  investment  –  the  case  of  Germany  in  European  Commission  (2020),  Country  Report  Germany  2020  - 
Including an In-Depth Review on the prevention and correction of macroeconomic imbalances, SWD(2020) 504 final. 

(13)  European Commission (2018), Country Report Germany 2018 - Including an In-Depth Review on the prevention and correction 

of macroeconomic imbalances, European Commission, Brussels. 

(14)  Späth, J. and Schmid, K. D. (2018),  "The Distribution of Household Savings in Germany" Jahrbücher für Nationalökonomie 

und Statistik, vol. 238, no. 1, 2018, pp. 3-32.  

(15)  International Monetary Fund (IMF) (2019), Germany - Selected Issues. IMF Country Report No. 19/214, July 2019.  

5 

-4.0-3.0-2.0-1.00.01.02.00203040506070809101112131415161718192021pps. of GDP(b) Investment as a share of GDP by institutional sectors: difference from EU Average, 2000-2021TotalCorporateGovernmentHouseholds024681012141600010203040506070809101112131415161718192021% of GDPa) Investment as a share of GDP by institutional sectorsDE - publicDE - householdsDE - businessEU27 - publicEU27 - householdsEU27 - business  
 
                                                           
Graph 2.3:  Household, labour and consumer perspective 

2. Assessment of macroeconomic imbalances 

(1) Income inequality is measured here as the income share of the top 10% of the population divided by the income share of 
the bottom 40% of the population. There is a break in the series in 2001 after the discontinuation of the ECHP survey and a 
break in 2020 reflecting a change in the SILC survey 
Source: European Commission services  

Disincentives  to  work  more  hours  still  drag  down  disposable  income  of  low-  and  middle-income 
households, although the share of labour income in GDP has increased in recent years. In the early 
2000s,  private  consumption  was  held  back  by  wage  moderation  which  led  to  a  shrinking  of  the  labour 
income share in GDP (see Graph 2.3b), but these losses have been largely recouped in the 2010s. At the 
same time, taxes on labour including social security contributions remain high, (16) affecting take-home 
pay  and  households’  disposable  incomes.  Taxation  of  marginal  employment  (such  as  for  Minijobs) 
combined with the joint income taxation of couples (Ehegattensplitting) create disincentives to increasing 
the number of hours worked, consequently constraining earned income. Policies that increase disposable 
incomes  particularly  among  low-  and  middle-income  households,  which  have  an  above-average 
propensity to consume, could help external rebalancing, while also fostering more inclusive growth. The 
minimum  wage  increases  in  2022  are  expected  to  work  in  this  direction,  absent  a  strong  reduction  in 
employment or hours worked.  

Housing investment has gradually increased from a low level but supply still falls short of housing 
demand.  Residential  investment  has  increased  from  the  trough  at  the  turn  of  the  century  and  currently 
accounts for roughly a third of domestic investment; however a large part of the increase was eaten up by 
rising  costs. (17) The  increase  of  housing  completion  from  the  low  levels  reached  in  2009  has  not  been 
sufficient  to  dampen  house  price  increases  (see  box  2.1).  Housing  shortages  show  stark  regional 
differences, and there is evidence that regional focus of construction activity does not fully align with the 
current and future housing demand. (18)  

Corporate  savings  outpace  corporate  investments  as  the  latter  are  held  back  by  temporary  and 
structural  barriers.  High  corporate  savings  partly  reflect  savings  of  wealthy  individuals,  accumulated 
within  firms  due  to  preferential  tax  treatment,  mainly  within  the  inheritance  and  gift  tax  system.  Firms 
owned  and  managed  by  a  small  number  of  families  tend  to  save  more  than  other  firms,  and  more  than 
similar  firms  in  the  euro  area. (19)  Gross  corporate  savings  remained  high  during  the  pandemic  and  in 
2021  they  reached  15.2%  of  GDP,  a  historical  peak.  This  reflected  that  a  large  share  of  companies 

(16)  Reflected 

in 

such 
https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en  and  OECD 
wages.  

https://europa.eu/economy_finance/db_indicators/tab/ 

and 
(2021),  Taxing 

databases 

rankings 

and 

as 

(17)  For further details see the thematic chapter on investment needs. 
(18)  Henger, R. M. and Voigtländer, M., (2021), Weiterhin hohe Wohnungsbedarfe – vor allem in Großstädten Aktuelle Ergebnisse 

des IW-Wohnungsbedarfsmodells. IW-Gutachten. 

(19)  International  Monetary  Fund  (IMF)  (2019),  2019  Article  IV  Consultation  -  Germany.  IMF  Country  Report  No.  19/213,  July 

2019. 

6 

-4.-2.0.2.4.6.8.10.0.70.750.80.850.90.9511.051.11.151.29597990103050709111315171921% of GDPIncome of top 10% over bottom 40%(a) Income inequality and current account balanceIncome inequalityCurrent account balancesource:EU-SILC and ECHP surveys-8-6-4-20249597990103050709111315171921pps. of GDP(b) Labour and consumption share dynamics, difference from EU27 averageDifference in the labour shareDifference in the consumption sharesource: EU-SILC and ECHP surveys  
                                                           
2. Assessment of macroeconomic imbalances 

benefitted from generous policy support, and also that many could exercise pricing power. At the same 
time, lockdowns, restrictions on economic activity, supply bottlenecks and heightened uncertainty acted 
against investment. Corporate investment recovered only partially in 2021, matching GDP growth, with 
the investment-to-GDP ratio remaining at 12.6% of GDP, slightly below its pre-pandemic level (12.8%), 
and remaining below the euro area average of 13.3% of GDP. Overall, the high corporate savings in the 
past decade only partially translated into domestic investment. Investment also remained below the  level 
in  other  EU  countries,  despite  favourable  financing  conditions,  persistent  investment  needs  and  high 
corporate  earnings.  Structural  barriers,  such  as  slow  permit  procedures  and  insufficient  digital 
infrastructure,  keep  inhibiting  public  and  private  investment. (20)  The  improvement  of  framework 
conditions,  such  as  reducing  administrative  burden  as  promoted  in  the  Recovery  and  Resilience  Plan 
(RRP), (21) is expected to contribute to further improvements.  

Over  the  years,  public  investment  remained  subdued,  as  fiscal  and  structural  policies  have  not 
achieved a sustained increase in public investment. Between 2014 and 2019, structural budget balances 
exceeded the medium-term budgetary objective under the Stability and Growth Pact (SGP). This appears 
partly due to overly prudent budgetary planning, as the realised headline balances repeatedly turned out 
better  than  planned  (the  difference  amounting  on  average  to  1%  of  GDP),  primarily  as  revenues 
systematically tended to develop more favourably than included in the budget plans.  

Government savings could have been used to a greater extent to enable higher public investment. 
Better activation of available resources, together with flanking measures enabling better absorption, could 
have  ensured  effective  realisation  of  a  larger  volume  of  investment.  This  could  have  helped  public 
investment catch up with the EU average (see Graph 2.2).  

Assessment of MIP relevant policies 

Responding  to  the  economic  effects of  the  pandemic  and  the  Russian  aggression  against  Ukraine, 
Germany has been taking measures to protect incomes and to reduce longer-term scarring effects 
on its economy. In 2020, federal support for municipalities was key to keep local public investment on 
track  despite  uncertainty  and  revenue  shortfalls.  Non-financial  corporations  benefitted  from  liquidity 
support, from debt and insolvency moratoria, as well as from the government’s effort to reduce the labour 
cost  by  providing  short-term  work  compensation  (Kurzarbeitergeld),  which  also  helped  households. 
Government support for corporates and households continued in 2021, combined with forced savings due 
to reduced consumption opportunities. In 2022, discretionary fiscal measures have been taken to cushion 
the effects of the Russian aggression against Ukraine on the economy. 

Timely and full implementation of the RRP and of all planned additional public investment will be 
crucial to increase the investment levels, but may nonetheless not cover all large investments needs. 
As explained in the chapter on investment needs, the Recovery and Resilience Plan aims to help reducing 
barriers  to  investment  and  promote  public  and  private  investment.  The  new  government  also  aims  to 
strengthen  investment  into  the  twin  green  and  digital  transition,  to  improve  framework  conditions  for 
infrastructure investment and to increase investment into its armed forces. Box 2.2 shows how GDP and 
current account balance might be impacted, assuming that these commitments translate into an additional 
yearly expenditure of EUR 16 billion on green investments (0.4% of GDP) and about EUR 20 billion on 
defence (0.5% of GDP). The simulation suggests the GDP level being 1.1% higher in 2025 to 2027, and 
the current account surplus 0.1 pp of GDP lower than without the stimulus. A higher than assumed import 
content,  for  example  for  defence  expenditure,  could  result  in  a  higher  reduction  in  the  current  account 
surplus  and  lower  increase  in  GDP.  At  the  same  time,  even  if  the  announced  investments  are 
implemented, they appear to only partially address the total investment needs.  (22) 

(20)  For further details, see the thematic chapter on persistent investment needs and bottlenecks. 
(21)  https://ec.europa.eu/info/business-economy-euro/recovery-coronavirus/recovery-and-resilience-facility/germanys-recovery-and-

resilience-plan_en 

(22)  See thematic chapter on investment needs. 

7 

 
 
                                                           
2. Assessment of macroeconomic imbalances 

Box 2.1: 

House price developments in Germany 

House prices accelerated during the pandemic to a 12% growth rate year-on-year, and now 
are at almost double their 2008 levels. House prices had been steadily outpacing income growth 
during  the  2010s,  and  increased  by  around  60%  from  2008  to  2019Q4.  Until  2021Q4,  prices 
increased by a further 22%. The house price dynamics are broad based: while price increases had 
been  particularly  severe  in  major  cities,  most  other  urban  and  rural  areas  had  also  seen  price 
increases close to the national average.  
Commission  and  ECB  models  consider  2021  German  house  prices  to  be  overvalued  by  20-
30%.  The  Bundesbank  assesses  house  price  overvaluation  to  range  between  15%  and  40% 
depending  on  the  region.  A  combination  of  various  assessment  tools  show  that  national  house 
prices  exceeded  the  level  suggested  by  fundamentals  by  28%  in  2021Q4,  compared  to  19%  in 
2020 (see Graph 1a). Among such tools, the price-to-rent gap surged to 39.4% above its long-term 
average. Since 2021, the average household would need more than ten years of income to buy a 
100m2  apartment,  which  is  nevertheless  comparable  to  the  situation  in  most  euro  area  Member 
States. 
The  growth  of  mortgages  has  been  considerable,  and  has  become  subject  to  a 
macroprudential recommendation by the European Systemic Risk Board (ESRB) in 2022. A 
low  average  mortgage  rate  has  made  loan  repayments  less  burdensome,  leading  to  a  significant 
increase in MFI loans for housing purchases, reaching a y-o-y growth of 7.1% in 2021 from 6.5% 
in 2020 (see Graph 1b). In addition, at 41% of GDP the level of household mortgages is relatively 
high when one takes into account the home ownership ratio in Germany, which is particularly low 
for low- and middle income earners. (1) Germany is one of two Member States to which the ESRB 
had  addressed  macroprudential  recommendations  in  2022.  The  ESRB  identifies  house  price  
overvaluation,  high  house  price  growth,  signs  of  loosening  of  lending  standards  and  significant 
data gaps as the key vulnerabilities in the German housing market. 
Housing  supply  is  increasing  but  is  still  insufficient  to  close  the  gap  between  demand  and 
supply.  Residential  construction  increased  to  7.2%  of  GDP  in  2021,  but  this  mainly  reflected 
renovation  (see  Table  1).  Despite  strong  price  signals,  the  number  of  completed  dwellings  per 
capita remains considerably lower than in neighbouring Member States, which points at structural 
supply rigidities (see chapter 3).  

Table 1: Selected house market indicators 

8 

-6-4-20246810121403Q404Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4Rate of change y-o-y (%)Graph 1b: ) Housing market indicatorsMFI loans for house purchase (y-o-y growth rate)Nominal House Price Index (2015=100), right axissource: Eurostat,ECB, European Commission calculations-20-10010203040500103050709111315171921% deviation of current priceGraph 1a: ) House price overvaluation gapModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gapsource: Eurostat,ECB, European Commission calculations   
2. Assessment of macroeconomic imbalances 

Notes:  
(1) Price to income in level is the number of years of income necessary to buy an assumed 100m2 dwelling. See 
Bricogne, J-C, A. Turrini, and P. Pontuch, 2019, “Assessing House Prices: Insights from HouseLev, a Dataset of Price 
Level Estimates”, Discussion Paper 101, European Commission, available in 
"https://ec.europa.eu/info/publications/assessing-house-prices-insights-houselev-dataset-price-level-estimates_en".  
(2) Price to income and price to rent gaps are measured in deviation to the long-term average (from 1995 to the 
latest available year).  
(3) The model valuation gap is estimated in a cointegration framework with nominal house prices as the dependent 
variable and five fundamental explanatory variables: total population, real housing stock, real disposable income 
per capita, real long-term interest rate and price deflator of final consumption expenditure. See Philiponnet and 
Turrini, Assessing House Price Developments in the EU (2017) available in 
"https://ec.europa.eu/info/publications/economy-finance/assessing-house-price-developments-eu_en" and revision 
notes presented to LIME in October 2019 and June 2020. [How to make a reference if it is not public?] 
(4) The average house price gap is the simple average of the price-to-income, price-to-rent and model valuation 
gaps. 
Sources: (a) Eurostat, (b) Eurostat, OECD, ECB, BIS, Ameco, national sources, European Commission calculations, (c) 
European Commission calculations, (d) ECB, Ameco (e) Ameco.  

(1)  The 2021 mortgage to GDP ratio was ca. 40% of GDP both in Germany and in the rest of the euro area. Yet owner-

occupiers accounted for 50% of German households in 2019, compared to 70% for the rest of the euro area.  

The  considerable  increase  in  the  minimum  wage  has  the  potential  of  increasing  low  incomes, 
supporting disposable incomes and consumption, yet earned incomes at the bottom remain heavily 
taxed. From October 2022, the minimum wage is increasing to EUR 12 per hour (+25% compared to the 
minimum wage at the end of 2021), the second highest level in the EU. This will bring the Kaitz-index 
(minimum  wage  over  median  wage)  from  about  50%  in  2020  to  about  60%,  and  result  in  a  significant 
wage push at the bottom of the wage distribution. This is expected to directly affect close to eight million 
workers  (about  a  quarter  of  all  employees)  and  have  an  upward  effect  on  the  entire  wage  distribution. 
This  contributes  to  a  positive  wage  drift  compared  to  the  overall  moderate  negotiated  wage 
developments. (23) At the same time, the tax  wedge  for low  and  middle-income earners remains among 
the highest in the EU, and constitutes a permanent drag on disposable incomes. 

Conclusion 

Germany  entered  the  COVID-19  crisis  with  a  persistent  current  account  surplus  that  remains 
largely  unchanged  and  continues  to  indicate  underuse  of  resources.  After  a  temporary  reduction  in 
2020, the current account surplus increased again in 2021 to 7.4% of GDP, and it remains high, reflecting 
private  consumption  restraint  and  persistently  subdued  investment  relative  to  savings.  A  number  of 
structural barriers, including administrative ones, constrains public and private investment. In the context 
of  heightened  geopolitical  risks,  business  and  consumer  uncertainty,  corporate  investments  may  remain 
subdued, highlighting the importance of frontloading public investment. Due to the important role of gas 
in Germany’s energy mix, Germany is more exposed to the energy price shock in general, and to Russian 

(23)  As of March 2022, the government expected the minimum wage increase to add 0.6 pps to wage growth in 2022 and 1.2 pps in 
2023,  while  the  Bundesbank  expected  the  growth  of  gross  wages  and  salaries  to  be  0.8  pps  higher  in  2023  compared  to  the 
situation without a minimum wage increase in October. The Bundesbank expected half of the total  impact from wage increases 
for those who earned previously below EUR 12, and the other half of the total  impact from wage increases who have earned 
above. (Bundesbank (2022), Monatsbericht Februar 2022, 74. Jahrgang, Nr. 2.) 

9 

2003-072008-122013-1720182019202020212021Q22021Q32021Q4House price developmentsUnitSourceReal house price, yoy growth%(a)-1.80.73.95.14.47.17.68.97.87.4Nominal house price, yoy growth%(a)-0.52.04.96.75.87.811.010.812.012.2Price to income in level (1)years(b)8.07.48.08.89.19.710.510.510.710.9Valuation gapsPrice to income gap (2)%(c)-5.1-11.8-5.34.27.014.323.721.725.728.4Price to rent gap (2)%(c)-7.1-9.41.616.221.128.539.436.942.146.0Model valuation gap (3)%(c)-7.3-9.0-4.72.55.012.920.718.922.725.4Average house price gap (4)%(c)-6.5-10.1-2.87.611.018.627.925.830.233.3Housing creditMortgages (% GDP)%(d)41.137.435.836.437.341.041.4Mortgages, yoy growth%(d)0.80.63.34.85.76.57.1Housing supplyResidential construction - dwellings  (% GDP)%(e)5.35.45.96.26.47.07.2Residential construction - dwellings, yoy growth%(e)-8.42.31.53.01.53.41.3Non-residential construction (% GDP)%(e)3.94.13.94.04.14.34.4Value added in the construction sector, yoy growth%(e)-12.31.20.71.90.43.8-0.5Building permits, yoy growth%(a)-7.65.77.31.93.22.43.9Other housing market indicatosShare of owner-occupiers, with mortgage or loan%(a)29.428.026.525.625.831.4 
 
 
                                                           
2. Assessment of macroeconomic imbalances 

energy imports in particular, than the EU average, which also may affect the current account in the short-
term (see box 2.3). 

There are promising policy announcements, still further resources and efforts to tackle investment 
bottlenecks as well as thorough implementation are key for promoting investment further. A timely 
and  targeted  implementation  of  the  planned  investments  would  help  to  increase  the  overall  investment 
level.  This  would  be  further  supported  by  tackling  the  investment  bottlenecks,  as  envisaged  in  the 
Recovery and Resilience Plan.  

Based  on  the  findings  in  this  in-depth  review,  the  Communication  “European  Semester  –  2022 
Spring  Package” (24)  sets  out  the  Commission’s  assessment  as  to  the  existence  of  imbalances  or 
excessive imbalances in Germany, in line with Regulation 1176/2011. 

(24)  European Commission (2022), European Semester Spring Package 2022, COM(2022)600 final. 

10 

  
                                                           
2. Assessment of macroeconomic imbalances 

Box 2.2: 

Spillover effects of public investment: Germany 

This  box  uses  the  Commission’s  QUEST  model  to  quantify  the  potential  impact  of  announced 
investment  plans  in  Germany. (1)    The  new  government  declared  the  2020s  to  be  a  “decade  of  future-
oriented investment” and sets out a long-term investment programme. The simulation here assumes that the 
plan could imply additional public investment of around EUR 16 billion per year until 2025, mainly geared 
toward the green and digital transition. (2) Reflecting a government pledge of setting up an EUR 100 billion 
fund for defence, the simulations also consider defence spending of EUR 20 billion per year. As a stylised 
assumption  for  modelling  purposes,  half  of  it  is  classified  as  investment.  The  total  stimulus  under 
consideration  reaches  almost  1%  of  German  GDP  on  average  (2022-2025).  The  analysis  assumes  that  the 
stimulus is sustained, i.e. the public investment rate only gradually returns to baseline. Finally, focussing on 
spillover  to  the  rest of  the  euro area,  a  second  set  of  simulations  is  run  jointly  for  the  German  and  Dutch 
investment programmes (the latter amounts to around 1.3% of Dutch GDP p.a. for 2022-2026). (3)   

The  model  simulations  apply  the  following  technical  assumptions.  Public  capital  in  the  model 
increases  productivity.  The  model  explicitly  features  short-run  implementation  delays  for  public 
investment, e.g. related to contracting time and planning horizons. Moreover, due to time-to-build frictions, 
investment  takes  time  to  translate  into  productivity  gains.  The  output  elasticity  of  public  capital  is  set  to 
0.12,  as  suggested  by  meta-analysis  (Bom  and  Ligthart,  2014).  A  low-productivity  scenario  highlights  the 
importance  of  this  assumption. (4)  The  simulation  assumes  that  no  neutralising  fiscal  measures  are 
implemented for the first ten years. Monetary policy is assumed to retain its accommodative stance for 2022 
and gradually normalise afterwards.  

Table  1  shows  that,  if  implemented  fully,  the  public  investment  programme  can  have  considerable 
positive domestic GDP effects and cross-border spillovers. In line with earlier QUEST simulations, the 
public investment plan increases output and enhances employment and wage growth  in both Germany and 
the rest of the euro area. (5) Based on the assumption of productive public capital, the additional investment 
boosts  demand  and  potential  growth.  There  are  positive  trade  spillovers  to  the  rest  of  the  euro  area  from 
higher  import  demand  in  Germany  and  a  euro  depreciation.  The  current  account  surplus  (in  %  of  GDP) 
declines  relative  to  baseline.  The  effect  is  smaller  under  high  productivity  because  of  the  implied 
competitiveness  gains.  Importantly,  the  assumed  accommodative  monetary  policy  limits  the  crowding  out 
effects of private demand and increases positive spillover in the monetary union. 

Table 1: Simulation results of public investment programme scenarios 

Note: The table reports the GDP level and the current account balance in %-deviation and pp-deviation from 
baseline, respectively. The first row considers only the DE investment plan. The rest of the euro area excludes 
Germany and the Netherlands. Source: Commission services. 

There  are  substantial  downside  risks.  The  low  productivity  scenario  highlights  the 
importance  of  selecting  high-quality  investment  projects.  While  sizable  effects  remain,  the 
growth  impact  is  substantially  lower  (especially  in  the  long  run)  when  public  investment  is 
allocated  to  less  productive  uses.  Besides  the  productivity  effects,  the  simulated  impact  depends 
strongly  on  the  assumption  that  the  plans  are  carried  out  in  full.  In  the  past,  realisation  of 
investment  plans  was  lagging  behind  announcements.  If  the  actual  investment  fell  short  of  the 
assumed  volumes,  the  positive  domestic  and  spillover  effects  would  be  (roughly)  proportionally 
lower.  

11 

202220232024202520262027202820292030Only DE plan (high productivity)GDP Germany 0.50.91.01.11.11.11.00.90.9Current account Germany (%GDP)-0.1-0.1-0.1-0.2-0.2-0.1-0.1-0.10.0GDP rest of the euro area0.10.20.20.20.20.20.20.20.2Joint stimulus (DE&NL, high productivity)GDP Germany0.50.91.01.11.21.21.01.01.0Current account Germany (%GDP)0.0-0.1-0.1-0.1-0.1-0.1-0.1-0.10.0GDP rest of the euro area0.20.20.20.30.30.30.30.30.3Joint stimulus (DE&NL, low productivity)GDP Germany0.40.70.70.70.70.60.40.30.3Current account Germany (%GDP)-0.1-0.1-0.2-0.2-0.2-0.1-0.1-0.1-0.1GDP rest of the euro area0.00.00.10.10.10.10.10.10.1 
 
 
2. Assessment of macroeconomic imbalances 

(1)  For information on the QUEST model, see Burgert et. al  (2020)  A Global Economy Version of QUEST: Simulation 

Properties, ECFIN Discussion Paper 126 and  

https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/economic-

research/macroeconomic-models_en#quest-macroeconomic-model   

(2)  This investment is expected to be realised from the top-up of Climate and Transformation Fund by an additional EUR 

60 billion, as announced end 2021. 

(3)  The  stimulus  is  on  average  EUR  19  billion,  with  a  backloaded  profile  of  0.7%  of  GDP  in  2022  and  2.6%  in  2025, 
assumed  to  revert  to  the  baseline  after  2026.  See  Box  2.1  in  the  in-depth  reviewt  on  the  Netherlands 
(SWD(2022)636 final) that provides further details. 

(4)  In  this  case,  the  output  elasticity  is  set  to  0.05,  in  line  with  the  lower  bound  considered  in  Leeper  et  al.  (2010). 

Government Investment and Fiscal Stimulus, Journal of Monetary Economics, 57, 1000–12. 

(5)  See European Commission (2017) and European Commission (2020). 

12 

 
 
 
2. Assessment of macroeconomic imbalances 

Box 2.3: 

Exposures to the commodity price surge, and to Russia 

This  box  summarises  risks  and  exposures  regarding  the  commodity  price  surge,  and  the 
importance of direct links with the Russian economy. The surge of commodity prices since 2021 
had  been  amplified  by  the  Russian  military  aggression  against  Ukraine.  This  box  reviews  the 
implications for the savings-investment imbalances in Germany. Due to the important role of gas in 
Germany’s  energy  mix,  Germany  is  more  exposed  to  a  commodity  price  surge  in  general,  and  to 
energy imports from Russia in particular, than the EU average.  

Graph b.3.1: 

Sectoral distribution of energy use and of energy imported from Russia 

Notes: The left panel displays the distribution of primary energy usage in Germany according to Eurostat energy balances. The horizontal axis displays the 
relative importance of energy-consuming sectors. The vertical axis displays the importance of energy importance from Russia in satisfying that need. Note 
that this dependence on Russia differs according to sector’s use of natural gas vs oil and coal. For comparison, the right hand panels displays the same 
concept for the EU aggregate. 
Russian imports include oil and petroleum products,natural gas and solid fossil fuels. 
Sources: Eurostat and European Commission services calculations 
The household sector depends on imported energy, in particular natural gas, for heating and 
other  residential  uses.  Industry  accounts  for  a  fifth  of  overall  energy  use  and  is  likewise  heavily 
dependent on natural gas and on imports from Russia (Graph b.3.1). Table b.3.1 shows that in 2020 
imports  from  Russia  accounted  for  about  two-thirds  of  natural  gas  and  one  third  of  crude  oil 
imported to Germany. Beyond those significant energy  links, the Russian economy seems to be of 
minor  importance  for  the  German  GDP.  Around  0.5%  of  German  production  is  tied  to  Russian 
final demand, and direct financial links with Russia are considerably smaller than for the EU average 
(Table b.3.1). In contrast, German demand is non-negligible for Russian GDP. Almost 2% of Russia 
value-added depend directly on German final demand mostly focused on hydrocarbons.  

Table b.3.1: 

Selected exposures 

Notes: data source Eurostat for commodity exposures, European Commission Figaro for value-added exposures, BIS for consolidated banking exposures, 
European Commission FinFlows for other financial exposures. Energy gross inland consumption excludes net imports of electricity and derived heat. 
The commodity price shock may affect private and public sector balance sheets, and will have 
an  impact  on  the  current  account  surplus.  If  German  net  imports  of  oil,  gas  and  coal  in  2022 
remain  comparable  to  the  pre-pandemic  period,  the  increased  prices  for  those  hydrocarbons  would 
weigh on the German trade balance by an amount of up to 2 pp of GDP, when compared with 2019. 
However, past commodity price shocks suggest that German corporations adjust to such import price 
shocks by passing through prices as well as reducing their investment. At the same time, geopolitical 
concerns may also incentivise certain types of domestic investment including in networks and LNG 
terminals. (1) Overall, due to the commodity price shock, behavioural and policy responses and  other 
temporary  factors,  the  current  account  balance  is  forecast  to  temporarily  decline  by  around  1 pp  of 
GDP  in  2022,  and  to  recover  somewhat  in  the  following  year.  A  potential  disruption  of  energy 
imports  from  Russia,  in  contrast,  might  have  more  wide-ranging  consequences,  however  with 
uncertain effects on external balances.  

13 

Trade & financial exposuresunitDEEUEnergy mixunitDEEUDomestic value added embodied in exports to Russia% of GDP0.5%0.4%Solids fossil fuels (incl. peat)% of Gross inland consumption 202015.6%10.8%Non-energy Russian import content in final demand% of GDP0.4%0.4%Oil and petroleum products% of Gross inland consumption 202034.7%32.7%Russian tourist nights spent% of total 20192.3%2.7%Natural gas% of Gross inland consumption 202026.1%24.4%FDI assets held in Russia% of 2020 GDP0.6%2.5%Renewables and waste% of Gross inland consumption 202017.9%19.0%Portfolio & other inv. assets held in Russia% of 2020 GDP0.4%0.9%Nuclear% of Gross inland consumption 20205.8%13.1%FDI liabilities towards Russia% of 2020 GDP0.2%1.2%Commodity exposuresunitDEEUPortfolio & other inv. liabilities towards Russia% of 2020 GDP0.6%1.1%Net petroleum imports from all countries% of GDP 20210.7%1.2%Consolidated banking exposures towards Russia% of 2021 GDP0.2%0.5%Crude oil imports from Russia '20% of oil imports34.0%25.7%Net gas imports from all countries% of GDP 20210.6%0.6%Gas imports from Russia '20% of gas imports65.2%43.6% 
 
 
 
 
 
 
2. Assessment of macroeconomic imbalances 

Table 2.1: 

Selected economic and financial indicators (Part 1), Germany 

(e) estimate based on ECB quarterly data 
(1) Potential output is the highest level of production that an economy can reach without generating inflationary pressures. 
The methodology to compute the potential output is based on K. Havik, K. Mc Morrow, F. Orlandi, C. Planas, R. Raciborski, W. 
Roeger, A. Rossi, A. Thum-Thysen, V. Vandermeulen, The Production Function Methodology for Calculating Potential Growth 
Rates & Output Gaps, COM, European Economy, Economic Papers 535, November 2014. 
(2) Deviation of actual output from potential output as % of potential GDP. 
(3) Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions 
capturing the main determinants of the saving-investment balance, including fundamental determinants, policy factors and 
global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account benchmarks", 
European Economy, Discussion Paper 86/2018, for details.  
(4) This benchmark is defined as the average current account required to reach and stabilise the NIIP at -35% of GDP over the 
next 20 years. Calculations make use of Commission’s T+10 projections. 
(5) NENDI is a subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment (FDI) 
equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP excluding instruments that 
cannot be subject to default. 
(6) Fundamentals-based benchmarks are derived from regressions capturing the main determinants of credit growth and 
taking into account a given initial stock of debt. Prudential thresholds represent the debt threshold beyond which the 
probability of a banking crisis is relatively high, minimising the probability of missed crisis and that of false alerts. Methodology 
to compute the fundamentals-based and the prudential benchmarks based on Bricongne, J. C., Coutinho, L., Turrini, A., 
Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

14 

all variables y-o-y % change unless otherwise stated2003-072008-122013-17201820192020202120222023Real GDP 1.60.71.81.11.1-4.62.91.62.4Potential growth  (1)1.31.01.61.21.00.80.91.01.1Contribution to GDP growth:Domestic demand 0.81.01.61.61.8-2.81.12.32.6Inventories 0.0-0.40.2-0.1-0.1-0.91.0-0.20.1Net exports 0.70.10.0-0.5-0.7-0.80.8-0.6-0.2Contribution to potential GDP growth (1):0.00.00.00.00.00.00.00.00.0Total Labour (hours) 0.20.10.60.30.10.00.10.10.2Capital accumulation 0.30.20.30.40.40.30.30.30.3Total factor productivity 0.80.60.70.60.60.50.50.50.6Output gap (2)-0.6-0.80.21.51.5-3.9-2.0-1.4-0.1Unemployment rate9.56.34.33.23.03.73.63.33.2Harmonised index of consumer prices (HICP)1.81.71.01.91.40.43.26.53.1GDP deflator 0.91.21.72.02.11.63.05.43.6External positionCurrent account balance (% of GDP), balance of payments4.66.17.77.97.67.17.46.46.8Trade balance (% of GDP), balance of payments5.35.56.96.15.75.75.4..Primary income balance (% of GDP)0.72.02.23.33.32.93.5..Secondary income balance (% of GDP)-1.4-1.4-1.4-1.5-1.4-1.6-1.5..Current account explained by fundamentals (CA norm, % of GDP) (3)0.41.11.92.32.32.32.21.81.7Required current account to stabilise NIIP above -35% of GDP over 20Y (% of GDP) (4)0.30.71.42.02.42.63.13.12.9Capital account balance (% of GDP)0.00.00.00.00.0-0.20.0..Net international investment position (% of GDP)11.424.234.354.860.363.468.4..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)7.119.035.748.353.655.854.2..Net FDI flows (% of GDP)1.11.21.50.0-1.11.11.02.02.6CompetitivenessUnit labour costs (ULC, whole economy)-0.82.31.73.23.24.30.52.62.1Nominal compensation per employee 0.92.22.52.93.40.43.43.44.0Labour productivity (real, hours worked)1.20.51.00.00.40.40.90.00.8Real effective exchange rate (ULC)-1.9-0.21.13.2-0.4....Real effective exchange rate (HICP)-0.1-1.60.32.6-1.51.30.8..Export performance vs. advanced countries (% change over 5 years)14.1-1.1-2.41.0-2.91.9...Private sector debtPrivate sector debt, consolidated (% of GDP)127.8119.0108.4107.7110.7120.1122.8e..Household debt, consolidated (% of GDP)66.859.053.952.653.457.759.5e..Household  debt, fundamental benchmark (% of GDP) (6)59.057.559.361.562.366.865.963.463.0Household  debt, prudential threshold (% of GDP) (6)43.446.751.954.654.753.352.853.754.3Non-financial corporate debt, consolidated (% of GDP)61.060.054.455.157.362.563.4e..Corporate debt, fundamental benchmark (% of GDP) (6)67.571.874.375.476.281.580.678.378.6Corporate debt, prudential threshold (% of GDP) (6)62.669.575.977.077.277.476.977.778.2Private credit flow, consolidated (% of GDP) 0.31.22.96.15.86.05.7e..Corporations, net lending (+) or net borrowing (-) (% of GDP)1.22.41.80.40.31.92.83.74.2Households, net lending (+) or net borrowing (-) (% of GDP)5.85.45.15.65.69.17.84.63.0Net savings rate of households (% of net disposable income)10.610.310.011.310.816.115.0..forecast 
 
    
 
 
 
 
 
Table 2.2: 

Selected economic and financial indicators (Part 2), Germany 

2. Assessment of macroeconomic imbalances 

(7) Unweighted average of price-to-income, price-to-rent and model valuation gaps. The model valuation gap is estimated 
in a cointegration framework using a system of five fundamental variables; total population, real housing stock, real 
disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure, based on 
Philiponnet, N., Turrini, A. (2017), "Assessing House Price Developments in the EU," European Economy - Discussion Papers 2015 - 
048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission. Price-to-income and price-to-
rent gaps are measured as the deviation to the long term average (from 1995 to the latest available year). 
(8) Price-to-income overvaluation gap measured as the deviation to the long term average (from 1995 to the latest available 
year). 
(9) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

(1)  See chapter on investment needs. 

15 

all variables y-o-y % change unless otherwise stated2003-072008-122013-17201820192020202120222023Housing marketHouse price index, nominal-0.52.04.96.75.87.811.0..House price index, deflated-1.80.73.95.14.47.17.6..Overvaluation gap (%) (7)-7.9-11.3-3.35.07.615.420.2..Price-to-income overvaluation gap  (%) (8)-6.0-12.7-6.12.86.513.723.5..Residential investment (% of GDP)5.25.45.96.26.47.07.2..Government debtGeneral government balance (% of GDP)-2.4-1.70.81.91.5-4.3-3.7-2.5-1.0General government gross debt (% of GDP)65.576.271.861.258.968.769.366.464.5Banking sectorReturn on equity (%).-1.62.12.21.71.9...Common Equity Tier 1 ratio.11.115.416.115.616.1...Gross non-performing debt (% of total debt instruments and total loans and advances) (9).2.11.91.21.11.1...Gross non-performing loans (% of gross loans) (9)..2.81.41.21.21.1..Cost of borrowing for corporations (%)4.73.52.11.61.61.61.4..Cost of borrowing for households for house purchase (%)4.73.82.11.91.31.21.3..forecast 
    
 
 
 
3.  THEMATIC CHAPTER: INVESTMENT NEEDS AND 

BOTTLENECKS 

Germany’s investment performance has been improving lately, but the overall level of investment 
remains  relatively  low.  Since  the  turn  of  the  century,  the  investment  to  GDP  ratio  has  remained 
relatively low after the phase-out of the post-unification investment efforts in East Germany. Since then, 
total gross investment has been hovering at around 20% of GDP and total net investment at around 2.5% 
of GDP with only little fluctuations. Both total investment and public investment in percent of GDP have 
remained considerably below the EU average (as shown earlier on Graph 2.2), though increasing in recent 
years. Various  investment  types,  including  intellectual  property  (IP)  and  non-residential  construction, 
remained  below  the  EU  average,  while  investment  in  equipment  has  been  on  a  declining  trend  moving 
towards  the  EU  average  (see  Graph  3.1). (43)  In  contrast,  the  share  of  non-productive  residential 
investment has been increasing in the 2010s and exceeded the EU average.  

Graph 3.1: 

Investment share of GDP by type of asset: difference from EU average, 2000-2021 

Source: DESTATIS 

Investment growth has been slow in an international comparison and important investment needs 
have accumulated over time. The increase in the net capital stock was more subdued than in other EU 
countries.  Between  2000  and  2019  the  net  stock  of  fixed  assets  increased  by  16%,  well  below  the  EU 
average  of  26%,  with  particularly  subdued  developments  in  the  energy,  telecommunications  as  well  as 
construction  sectors  (see  Table  3.1). (44)  There  are  significant  investment  needs  for  infrastructure  and 
intangibles  (see  Graph  3.3  ),  resulting  in  a  slow  take-up  of  IT  in  business  and  public  administration, 
lagging  expansion  of  generation  and  transmission  capacity  in  the  energy  sector  and  slow  roll-out  of 
communication networks. These shortcomings are slowing down the green and digital transition.  

(43)  There is a long-term trend of a decline in the share of equipment investment in GDP, in line with a corresponding trend of a 
gradual decline in the share of industry in gross value added. Both these trends are less pronounced when correcting for relative 
prices. For the investment ratio in GDP, the declining investment in machinery and equipment was counteracted by  residential 
investments, essentially representing housing. However, volume increases in housing investment remained limited as the value-
added expansion also reflected price increases. 

(44)  Adding to a protracted growth in the past, the crisis dented net investment. Net fixed capital formation in 2021 remained 18% 

below its 2019 level, compared to minus 3% for the rest of the euro area. 

16 

-4.0-3.0-2.0-1.00.01.02.000010203040506070809101112131415161718192021pps. ofGDPTotalDwellingsNon-resid. constructionEquipmentIP products 
 
  
                                                           
3. Thematic chapter: Persistent investment needs and bottlenecks 

Table 3.1: 

Net investment stock by sector, in 2019 compared to 2000 

Data missing for Bulgaria, Cyprus, Croatia, Malta, Portugal for EU-27  
Source: Eurostat (nama_10_nfa_st) 

Graph 3.2:  Net investment by government subsector 

Source: Destatis 

Public investment, especially at municipal level, has been characterised for decades by negative net 
investment  in  key  public  infrastructure,  in  particular  schools.  According  to  numerous  studies,  the 
annual  public  investment  needs  related  to  decarbonisation  and  digitalisation,  education,  transport  and 
infrastructure vary between 1.3% and 2.1% of GDP over at least a decade (Bardt et al., 2020 (45); Agora 
Energiewende,  2021; Krebs, 2020 (46) and KfW, 2021 (47)). The German Economic Institute  (IW Köln) 
and the Macroeconomic Policy Institute (IMK) estimate the public investment backlog to be at EUR 450 
billion  for  the  next  decade. (48)  This  figure  includes  over  EUR 100 billion  in  national  infrastructure 
including  rail,  broadband  expansion  and  trunk  roads,  a  similar  amount  for  investments  in  education, 
including early childhood education, all-day schools and universities, and EUR 65 billion for investments 
in decarbonisation. The declining quality of public infrastructure (49) and the insufficient modernisation of 
services affect the attractiveness of Germany as a  business location, (50) negatively impacting corporate 
investment.  

(45)  Bardt, H., Dullien, S., Hüther, M. and Rietzler,  K., (2020), For a sound fiscal policy.  Enabling public investment, IW-Policy 

Paper, Nr. 6, Köln 
T. 

(46)  Krebs, 

(2020), 

Öffentliche 

Investitionen: 

Bedarfe 

und 

Finanzierung. 

https://www.bundestag.de/resource/blob/684410/143685b2edde41b8bb29106f3a4b6dbf/Prof-Tom-Krebs-data.pdf  

(47)  https://www.kfw.de/%c3%9cber-die-KfW/KfW-Research/KfW-Kommunalpanel.html 
(48)  The estimates are based on a bottom-up approach, which also draws on an investment gap of about EUR 150 billion at the local 

level, estimated by the municipal survey of development bank KfW. 

(49)  Between  2002  and 2020, the  real  value  of  public  non-residential buildings  and  structures  has declined by  10%, according  to 

Destatis. 

(50)  The  perceived  quality  of 

infrastructure  has  declined  over 

time  according 

to 

the  World  Economic  Forum: 

http://reports.weforum.org/global-competitiveness-index-2017-2018/competitiveness-rankings/#series=EOSQ056 

17 

SectorDEFRITNLATSEESEU27*Electricity, gas (NACE D) 98%148%119%144%115%149%179%125%Construction (NACE F) 86%105%98%128%100%214%153%136%Telecommunications (NACE J)108%204%151%119%117%246%153%157%Education (NACE P)106%101%107%93%112%147%140%112%All sectors of the economy116%111%118%131%135%150%157%126%-0.4-0.20.00.20.40.60.81.091939597990103050709111315171921% of GDPTotalFederalStateLocal  
 
 
  
 
 
  
                                                           
3. Thematic chapter: Persistent investment needs and bottlenecks 

Additional  public  investment  would  help  increase  the  economy’s  potential  growth  and  resilience. 
Timely and full implementation of the planned public investment will be crucial to increase investment 
levels,  even  if  the  announced  investments  remain  below  actual  needs.  Germany’s  Recovery  and 
Resilience  Plan  is  geared  towards  reducing  barriers  to  investment  and  promoting  public  and  private 
investment,  supporting  the  digital  and  green  transition  with  funding  amounting  to  0.7%  of  GDP  over 
2021-2026.  In  addition,  the  new  government  proclaimed  the  2020s  to  be  a  “decade  of  future-oriented 
investment” suggesting a long-term investment programme, combining public and private investment on 
areas such as climate protection, digitalisation, education, research and innovation and infrastructure. The 
coalition agreement of the new government did not specify these objectives in detail, while more concrete 
commitments  have  been  starting  to  emerge  since.  Considering  existing  announcements,  the  allocated 
financial  resources  remain  relatively  limited  compared  to  the  large  investment  needs.  The  federal 
government has increased the Climate and Transformation Fund by EUR 60 billion, assumed to result in a 
spending increase of EUR 16 billion in the four years 2022-2025. The government pledged another EUR 
100 billion for defence investment, with spending planned at EUR 14 billion in the first year in 2022 and 
then yearly EUR 20 billion until including 2026. (51) Fully implementing these two announcements would 
raise Germany’s GDP by 1.1% at its peak, and reduce the current account surplus by 0.1 pps, according to 
simulations by the Commission’s QUEST model (see Box 2.3).   

Even if additional resources are made available for public investment, take-up may be limited and 
support schemes may not function efficiently due to structural problems. The federal government has 
been  increasing  investment  support  in  many  areas  under  the  responsibility  of  the  Länder,  for  instance 
through  the  DigitalPakt  Schule  programme  and  regional  support  (Regionalisierungsmittel)  for  public 
transport.  However, funding outflows  have been slow: for example, in 2020, only 50% of the available 
funds from the local transport financing act were used. The Federal Audit Office issued recommendations 
on  standardising  and  simplifying  public  transport  schemes  and  to  increase  the  contribution  of  the 
Länder. (52) The outflow of funds is further slowed down by shortages in raw materials and skilled labour 
in the construction industry. 

Intricate, inefficient and outdated administrative planning and approval procedures and the lack of 
administrative capacities often result in severe bottlenecks to private and public investment. While 
there  are  temporary  drags  to  investment  such  as  supply  bottlenecks  and  uncertainty,  some  investment 
barriers have been at play for longer. Protracted planning and approval procedures frequently lead to an 
insufficient  uptake  of  public  investment  funds  and  slow  down  investment  projects. (53)  Small 
municipalities  and  districts  (Kreise)  in  particular  often  lack  the  administrative  capacity  to  manage 
investments and larger approval procedures. Local administrations suffer from a persistent skills shortage, 
both  in  number  of  people  but  also  in  the  technical  and  digital  competences,  which  has  repeatedly  been 
identified  as  among  the  most  important  bottlenecks. (54)  Harmonisation  and  standardisation  of  IT 
infrastructure would speed up the process and reduce operating costs and bureaucracy. Germany is also 
lagging behind its own goals concerning eGovernment, i.e. the provision of digital public services. (55)  

The  Recovery  and  Resilience  Plan  addresses  some  of  the  challenges  related  to  slow  planning  and 
approval  procedures,  and  important  further  commitments  were  suggested  in  the  coalition 
agreement, while effective implementation of related measures will be key. The Plan adopted on 27 
April 2021 includes important measures to accelerate planning procedures, to help municipalities manage 
investment subsidies and digitalise schools, as well to digitalise public services. The coalition agreement 
of the new government also commits to streamline administrative, planning, and approval procedures for 

(51)  Besides  the  commitment  to  boost  public  investment,  the  coalition  also  promises  to  return  to  the  German  deficit  rule 
(Schuldenbremse)  from  2023  onwards.  The  ongoing  legal  challenge  to  transfer  EUR  60  billion  to  the  Climate  and 
Transformation Fund may still put the pledge into question. 

(52)  https://www.bundesrechnungshof.de/de/veroeffentlichungen/produkte/sonderberichte/2022-sonderberichte/oepnv-finanzierung-

durch-den-bund-bereinigung-notwendig 

(53)  For example, the average realisation time of building a railtrack of over  30 km has been 23 years of which 14 years relate to 
planning  and  permitting.  IW  Köln  (2022),  Faktencheck  Güterverkehr  in  Deutschland:  Von  der  fehlenden  Infrastruktur  zum 
Verlagerungspotenzial 

(54)  In 2021, 90% of the surveyed companies identified availability of skilled staff as a barrier to investment, 77% identified high 
energy costs, and 71%-71% suggested business regulations and taxation or uncertainty about the future (European Investment 
Bank (2021), Investment Report 2021/2022 – Recovery as a springboard for change)  

(55)  National  Regulatory  Control  Council 

(2021),  Monitor  Digital  Administration,  Number  6.  Available 

at: 

https://www.normenkontrollrat.bund.de/nkr-de/digitalisierung 

18 

                                                           
 
3. Thematic chapter: Persistent investment needs and bottlenecks 

private  and public  investment, aiming to  “cut  the overall duration of proceedings by at least half”. The 
government pledges to increase personnel and technical capacities at authorities and courts, to strengthen 
public consulting offers for the Länder and municipalities and to standardise IT solutions. There should 
also be a closer link between regional planning and approval procedures to avoid duplicating reviews. To 
ensure  implementation,  a  joint  steering  group  of  the  federal  government  and  the  Länder  will  be  set  up. 
These initiatives are welcome and their timely implementation will be important. Mixed responsibilities 
between  levels  of  government  may  complicate  implementation.  Moreover,  while  halving  the  length  of 
procedures is a welcome commitment, the lack of reliable statistics on the duration of procedures to date 
and  on  the  individual  steps  in  the  procedures  makes  it  difficult  to  operationalise  this  promise  and  to 
measure progress. 

Increased electricity needs and the already decided phasing out of coal and nuclear call for strong 
investments  in  power  generation  and  distribution.  Net  fixed  assets  in  Germany’s  power  generation 
stagnated  since  2001,  while  they  increased  by  about  50%  in  other  advanced  EU  economies  such  as 
France,  the  Netherlands,  and  Sweden  (see  Graph  3.3).  This  reflects  decades  of  subdued  investments 
hampered by administrative, governance and permitting barriers. Moreover, a well-anticipated structural 
transformation is ahead, as Germany plans to phase out nuclear power plants by the end of 2022 and the 
coalition vowed to bring forward the phase out of coal power plants from 2038 to 2030, ideally. The lost 
capacity would be primarily replaced by renewables, as the government has committed to increasing the 
share of renewables in electricity generation to 80% by 2030 and to almost 100% by 2035. However, an 
expansion  of  the  electricity  grid,  flexibility  solutions,  decentralised  energy,  energy  efficiency  measures 
and the reduction of investment bottlenecks for the deployment of renewables and expanding the grid are 
indispensable to reach this target. Likewise, adopting renewable hydrogen as a power source in industry 
will  be  important.  To  move  forward  with  decarbonisation,  Germany  needs  to  expand  further  the 
generation  capacity  for  renewable  energy,  transmission  and  distribution  networks  and  storage.  The 
Network  Development  Plan  2021-2035  provides  for  investments  of  about  EUR  80  billion  for  onshore 
transmission  grid  expansion  and  of  about  EUR  38  billion  for  connecting  offshore  wind  energy. (56) 
According  to  estimates  published  by  the  national  regulatory  authority,  additional  investment  of  at  least 
EUR 16 billion is required for expanding the distribution grids until 2030. So far, investments in power 
generation  capacity  and  power  networks  have  lagged  behind  the  goals  and  ambitions  and  the  pace  of 
expansion of the electricity grids has been slower than in other developed countries. The inauguration of 
the North-South interconnector SuedLink that was initially planned for this year was postponed, with the 
latest estimations being for 2028. (57) In particular, significant barriers remain in terms of conflicts over 
land use and lengthy approval procedures. 

(56)  These investments are to be implemented by the power grid operators. A network charge to be paid by consumers ensures the 
refinancing of the respective investment cost that are not part of the federal budget. The investment plan takes take into account 
the currently applicable increased renewable energy targets, a complete coal phase-out as well as interconnectors. 

(57)  https://www.faz.net/aktuell/wirtschaft/netzagentur-gibt-terminplan-fuer-stromautobahnen-auf-17765016.html 
https://www.faz.net/aktuell/wirtschaft/deutschland-droht-naechstes-grossprojektdebakel-17769008.html 

and 

19 

 
                                                           
 
Graph 3.3:  Net fixed assets in power generation and distribution (NACE D) 

3. Thematic chapter: Persistent investment needs and bottlenecks 

(1) Constant prices, index 2001=100 
Source: Eurostat 

Geopolitical risks shed new light on the investment needs in the energy sector (see also box 2.3). As 
key renewable sources of electricity, such as wind and solar, are variable, they need to be  matched with 
the necessary infrastructure and flexibility solutions, including storage, to guarantee the constant supply 
of energy. In this context, the coalition agreement of the new government announces plans to update the 
national  grid  development  plan  towards  a  “climate  neutrality  grid”.  In  addition,  power  plants  fed  with 
pipeline-delivered natural gas were planned to serve as balancing sources of electricity during the climate 
transition, as set out in Germany’s National Energy and Climate Plan. However, the reliance on natural 
gas  is  being  challenged  by  high  gas  prices,  geopolitical  tensions  and  the  uncertainty  of  supply  from 
Russia, Germany’s main natural gas provider. Considering the Russian unprovoked invasion of Ukraine, 
the  certification  procedure  for  the  gas  pipeline  Nord  Stream  2  has  been  suspended.  Substituting  for 
Russian gas supplies by renewable energy and LNG imports will require major immediate investment in 
relevant  infrastructure,  notably  electricity  transmission  capacity  and  regasification  plants.  This  creates 
important implementation and administrative challenges. 

Better  framework  conditions  and  digital  infrastructure  could  speed  up  investment  in  digital 
technologies. Despite initiatives to digitalise businesses, the share of SMEs with at least a basic level of 
digital intensity is 59% in Germany. This is relatively low compared to the top five performers in the EU 
which  have  shares  above  70%.  Germany  is  also  still  lagging  behind  in  deploying  very  high-capacity 
broadband in rural areas (with a coverage of 22.5% versus 37.1% EU average in mid-2021). At the same 
time, only 15.4% of households have access to a fibre connection (compared to an EU average of 50.0%), 
which  places  Germany  among  the  Member  States  with  the  second  lowest  fibre  coverage,  while  the  top 
five EU performers have a fibre coverage higher or equal to 85% (Latvia, Spain, Portugal, Romania and 
Bulgaria).  The  lack  of  fibre  connections  is  particularly  affecting  rural  areas  (11.3%  versus  33.8%  EU 
average).  (58) Overall, the fixed assets of the ICT sector have tended to grow more slowly than in peer 
economies. 

Achieving  sustainable  and  resilient  mobility  requires  considerable  investment  in  rail  and  public 
transport,  as  well  as  maintenance  of  existing  road  networks  and  bridges.  Germany  has  announced 
ambitious plans for rail, including to double passenger numbers, electrifying 75% of rail tracks up from 
currently  around  60%  and  increasing  rail  freight  to  25%  of  total  freight  by  2030.  In  2022,  EUR  13.6 
billion  investments  (0.3%  of  GDP)  are  planned  in  railway  infrastructure,  with  the  dual  objective  of 
increasing  capacity  and  the  level  of  digitalisation.  While  this  is  about  EUR  900  million  higher  than  in 
2021, and the highest amount invested so far, the railway investment backlog is estimated by Bardt et al. 
at  EUR  60  billion  in  2020  (1.7%  of  GDP).  In  addition,  the  KfW  survey  of  municipalities  suggests  an 
investment  need  of  EUR  33.6  billion  in  roads. The  condition  of  the  bridges  in  particular  often  leads  to 
traffic problems. 

Housing investment has been increasing consistently, but supply still falls short of housing demand. 
Housing investment has increased lately, including during the pandemic, to reach 7.2% of GDP in 2021, 

(58)  For further statistics on digitalisation in Germany and in the EU, see https://digital-strategy.ec.europa.eu/en/policies/desi 

20 

80901001101201301401501609597990103050709111315171921DEFRNLSEATBE    
                                                           
3. Thematic chapter: Persistent investment needs and bottlenecks 

reaching the highest level in the EU on account of substantial renovation investment (Box 2.1). Still, that 
is not enough to make up for the low investments of the early 2000s, and the net balance sheet of value of 
housing  in  the  last  two  decades  developed  much  slower  than  in  other  EU  economies  (see  Graph  3.4). 
Current completion rates represent about 0.7% of the housing stock, remaining considerably below levels 
in  neighbouring  countries. (59)  In   2020,  274 000  new  dwellings  were  completed,  which  was  close  to 
double  the  160 000  completions  in  2010,  but  this  is  still  half  of  the  completion  peak  of  1995  and  this 
remained  below  the  2017-2021  government  target  of  300 000  completions  per  year  (Graph  3.4).  The 
coalition  agreement  for  the  new  government  increased  this  target  to  400 000  completions  per  year.  Of 
these,  100  thousand  are  targeted  as  socially  supported  –  which  would  quadruple  current  social  housing 
completions,  and  this  signals  the  need  for  considerable  efforts. (60)  To  better  match  housing  supply  to 
demand, it would help to improve the availability of building land, (61) reduce bureaucracy and digitalise 
the building administration (Bauämter), while increasing the availability of skilled workers. Beyond new 
housing, the climate transition as well as high energy prices lead to increased investment needs in deep 
housing  renovations.  KfW  supported  programmes,  some  of  which  is  financed  from  the  Recovery  and 
Resilience Plan, play an important role in this context.  

Graph 3.4:  Housing completions, cost of construction, net balance sheet value of housing 

(1) net balance sheet value of housing is shown in constant prices 
Source: Destatis for completion of dwellings and cost of construction, Eurostat for net balance sheet value of housing. 

Investment needs in education remain considerable and tackling them could bring both economic 
and social dividends. Germany has been devoting comparatively fewer resources to education than other 
EU countries, with public spending in 2020 amounting to 4.7% of GDP, compared to an EU average of 
5.0%. (62) There is a persistently high investment backlog in schools, estimated at EUR 47 billion (1.3% 
of  GDP)  in  2021,  making  up  one-third  of  total  municipal  investment  needs  identified  in  KfW’s 
survey. (63)  Moreover,  improving  coverage  and  quality  of  early  childhood  education  and  care,  all-day 
schools and universities necessitate an additional EUR 109 billion in the next ten years according to IW 
Köln  and  IMK  (Bardt,  2020). The  persistent  gap  in  educational  outcomes  of  disadvantaged  groups  is  a 
constraint  for  skilled  labour  supply.  Further  resources  in  this  area  would  promote  potential  growth, 
improve adaptability of the labour force to structural change and contribute to social inclusion. 

(59)  OECD  Affordable  Housing  Database,  and 

in  particular  https://www.oecd.org/els/family/HM1-1-Housing-stock-and-

construction.pdf 

(60)  The  tenant  association  (Mieterbund)  sees  public  support  of  EUR  10  billion  per  year  necessary  to  reach  the  target. 
https://www.mieterbund.de/presse/pressemeldung-detailansicht/article/62313-wir-brauchen-15-mio-neu-gebaute-wohnungen-
bis-2025.html 

(61)  Between 2010 and 2019 the price building land increased by 84% on average, driving up the price of housing  – as prices for 
new  housing increased by  47%  in this period.  https://www.bbsr.bund.de/BBSR/DE/presse/presseinformationen/2021/wohnen-
immobilien.html 

(62)  Eurostat COFOG database, at https://ec.europa.eu/eurostat/web/products-datasets/product?code=gov_10a_exp 
(63)  KfW (2021), KfW-Kommunalpanel 2021 

21 

901001101201301401501601700001020304050607080910111213141516171819202000=100b) Net balance sheet value of housingATBEDEESFRIENLPLSE0100020003000400050006000  0 100 000 200 000 300 000 400 000 500 000 600 000919395979901030507091113151719212325a) Completion of new dwellings and estimated cost of construction New dwellings completed (and target)Estimated cost per square meter (rhs)