The Organization for Economic Cooperation and Development says the German economic upswing is set to continue but warned Berlin it had to undertake reforms in every sector, in particular education, to maintain its edge.
Germany's economy is expected to grow despite fears of a global recession
Germany had enjoyed a strong cyclical rebound after a long period of stagnation, the OECD said, adding that solid foundations had been laid for sustaining the upswing or at least mitigating the effects of financial market turmoil.
It called, nevertheless, for further reforms to raise output, noting that a "good start in this regard has been made with the labor market reforms of recent years."
The OECD put growth this year at 1.8 percent, adjusted for working days, with 1.6 percent in 2009. Economic growth last year came in at 2.9 percent.
However, the OECD expected growth in Europe's biggest economy to slow sharply "from 2.5 percent in 2007 to 1.5 percent in 2009," shaving downwards estimates released in December of 2.6 percent for 2007 and 1.6 percent for 2009.
The OECD based its forecast on the assumption that inflation would not continue to rise. German annual consumer inflation came in at the comparatively high level of 3.1 percent in March.
The study noted that exports have boomed thanks to German expertise in capital and intermediate goods used to make other products that are currently in demand and which have not been seriously affected by the rise of the euro.
But to raise the country's growth potential further, Germans needed to put in more hours on the job, and sectors such as energy and transportation had to be opened up to greater competition, the survey said.
The OECD said that social and tax policies should also be changed to encourage Germans to work and study longer.
Incentives needed to encourage more work and study
Tax reforms could persuade Germans to study for longer
The OECD said the German workforce could be employed to greater effect with longer hours and increased efficiency and to achieve this, policies should be adapted.
Changes should include a reduction of tax disincentives, improved access to childcare for working mothers, and increased competition in the energy and transport sectors, it added.
"Among OECD countries, German stands out as having a very low number of hours worked," with only Norway and the Netherlands showing a lower rate, the 30-member organization noted.
Meanwhile, "improving education outcomes, including by reducing the impact of socio-economic background," was crucial to sustaining German growth and social cohesion, it added.
The organization found that in Germany, women, especially those who were married, worked less than the OECD average.
It also said that the "effective tax burden" which included taxes, social charges and withdrawal of cash benefits on second earners in Germany "is particularly high."
Mothers and part-time employees should contribute more
More child care places would allow mothers to go back to work
A lack of childcare facilities was a key reason for low work input by mothers it said, noting that the government planned to increase the number of daycare places significantly by 2013.
In general, Germany had a high percentage of part-time employees, who "work fewer hours than in any other OECD country," the survey found.
In addition, the 30-member OECD stressed that improving education "would enhance productivity and employment prospects and, if distributed more evenly, reduce income inequality.
"The main problem to overcome in student achievement is that socio-economic and/or immigrant backgrounds have a large impact on outcomes," the report said.
Higher education was below average in general among those aged between 25 and 34, it said.
The review suggested efforts be made to raise attendance by children from disadvantaged backgrounds "in kindergarten from three years of age onwards," to level the education playing field later in life.
Education institutions should be more accountable
Teachers should be held responsible for pupils' progress
Schools and teachers should also be held "more accountable for the progress of all students and to provide individualized support to weaker students to bring them up to the required level quickly, as occurs in Finland," it added.
With regard to a German debate over expanding minimum wage agreements, the survey recommended that independent experts consider the matter to avoid politicizing the issue, and to lessen "the risk of the minimum wage being set at a level that harms employment."
In other comments, the OECD proposed that Germany strengthen competition in network industries such as energy and railways.
That would boost productivity because those sectors "produce important services for other parts of the economy," it said.
Rising energy prices are another hot German issue at present.
Incumbent companies currently have "considerable scope to make market entry for their competitors cumbersome and costly," the OECD noted.