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Germany

Consumption to drive growth in Germany, says OECD

The Organization for Economic Cooperation and Development (OECD) forecasts fewer exports and higher consumption for Germany. The economy will grow and the unemployment rates will fall, according the report.

Domestic demand is to become the major pillar of the German economy. Domestic consumption will drive German growth more than it does in other eurozone countries. At least that is what the OECD says in its economic outlook for Germany. According to the report, gross domestic product (GDP) will grow by 1.7 percent, which corresponds with the German government's projections.

In 2015, Germany's trade surplus, recently criticized by the US and the European Union, will fall to 5.5 percent of GDP, according to the outlook. In the EU, the foreign trade surplus must not exceed six percent of GDP over the space of three years. Since 2006, Germany has regularly exceeded this threshold.

Europe lags behind

The OECD forecasts slower economic growth for the entire eurozone. But it praised the structural reforms implemented in the crisis-hit countries of southern Europe.

"We are in a financial crisis and it has left its mark," says Eckhard Wurzel, who is responsible for the EU and the eurozone in the OECD economic council. But there need to be more reforms to raise the competitiveness of the individual countries.

Higher salaries, lower unemployment

According to the OECD, economic growth will pick up in Germany again in 2015, with a growth rate of two percent, while the economy in the entire eurozone is expected to reach 1.6 percent. The OECD emphasized that higher income and low unemployment rates will strengthen consumption in Germany. At the same time, confidence in the euro should increase and low interest rates should back up investments.

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Germany's unemployment rates are set to drop

In 2015, the unemployment rate in Germany could fall to 5.2 percent - measured by the standards of the International Labor Organization (ILO). In 2013 and 2014, the unemployment rate in Germany will likely remain at 5.4 percent. The unemployment rate in the eurozone will increase from 12 percent in 2013 to 12.1 percent in 2014 before going down to 11.8 percent in 2015.

Stricter reforms

Eckhard Wurzel from the OECD demands stricter reforms for the entire eurozone - especially for countries like France which could become a problematic case under the rule of President Francois Hollande. "It's about restructuring public finances, a higher competitiveness on the product market, and a simplification of the tax system. It is important that all these points will be solved," he said.

The OECD welcomes the extremely relaxed monetary policy of the ECB and the Japanese central bank. According to the advice of the OECD the eurozone and Japan should keep their relaxed monetary policy. But do these two economies dangerously depend on the constant easy money from the central banks?

Clarity about the bank balances

In fact, there are too many bad loans. "In this respect, there is uncertainty about bank balances," said Wurzel. There should be tests in 2014 to find out how big the problem is. After the tests the banking market should be corrected and, if needed, be recapitalized.

In future, the financial markets should function smoothly, according to the OECD expert. Then credits for stronger economic growth could be offered again.

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