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IMF urges Germany to spur domestic demand
BERLIN (AP) — The International Monetary Fund on Tuesday praised Germany's strong economic record in the face of turmoil in financial markets andEurope's debt crisis, but urged Berlin to take the opportunity to boost domestic demand in case exports drop off.
In an annual report on Europe's biggest economy, the IMF said low unemployment andhealthy pay increases for workers would normally lift consumer spending, and recommended the government allow this to happen.
It also suggested that Germany should take advantage of favorableeconomic conditions to encourage investment outside manufacturing, the country's traditional area of strength.
This year has seen significant pay rises for many workers in Germany, increases thatcame after a long period of relative restraint and two years of strong economic growth.
In May, Germany's biggest industrial union, IG Metall, secured a 4.3 percent pay raise over 13 months forsome 3.6 million manufacturing workers. In March, some 2 million public-sector employees won a raise totaling 6.3 percent over two years.
Meanwhile, Germany's year-on-year inflation rate hit an18-month low of 1.7 percent in June and unemployment stands at 6.6 percent.
"The performance of the German economic has been remarkable so far," the IMF report's lead author, Subir Lall, toldreporters in a conference call.
"With incomes rising and healthy balance sheets you should expect naturally domestic demand to pick up," he said, adding that by spurring domestic demand Germanywould also benefit other countries in the troubled 17-nation eurozone.
The IMF report identified the eurozone's debt woes, undercapitalized banks and the possibility of a global downturn as thebiggest risks to the German economy.
It concurred with a recent German central bank forecast of 1 percent economic growth in 2012. The IMF predicts growth will rise to 1.4 percent next year.