OECD says German investment deficiency poses growth risk
By Paul Carrel
BERLIN (Reuters) - Germany has failed to take advantage of cheap borrowing costs to boost investment that is essential to longer-term economic growth, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday.
In an economic survey, the Paris-based OECD also said weakness among Germany's trading partners could weigh on consumer confidence, which is crucial to supporting the private consumption on which the economy is increasingly reliant.
"A sharper slowdown of activity in emerging markets and renewed weakness of activity in the euro area could weaken exports more strongly than projected, dampen investment, and spill over to consumer confidence," the OECD said.
In January, Germany lowered its growth forecast for 2016 to 1.7 percent - the same rate as last year - citing the effect of an emerging market slowdown on its exports.
The OECD expects the German economy, Europe's largest, to grow 1.3 percent this year in work-day adjusted terms, and 1.7 percent next year. But it said the disposable incomes of poor households had not grown in real terms in the last decade.
"This suggests that the fruits of growth and the fruits of investment are not being shared by all," OECD Secretary General Angel Gurria told a news conference in Berlin.
"These challenges will increasingly come to the fore as Germany seeks to integrate the one million humanitarian immigrants that sought asylum in 2015," he said, adding that this posed both a formidable challenge and opportunity.
On investment, the OECD singled out a weakness in investing in 'knowledge-based capital' - spending on intangible assets such as intellectual property, software and management skills - where it said Germany lagged other leading economies.
"Reforms to foster investment in knowledge-based capital and unleash the potential of key services ... would also boost the competitiveness of manufacturing, fostering the transition to 'Industry 4.0'," it added - a reference to the government's push to connect manufacturing to the Internet.
Rather than exploiting record-low borrowing costs to ramp up investment, the German government's priority has been to maintain a balanced budget.
To boost investment and strengthen productivity, the OECD urged Germany to reduce restrictive legislation in professional services, sell government stakes in regional Landesbanks and provide more support for municipal investment projects.
Turning to Germany's foreign trade surplus, the OECD added: "A large current account surplus contributes to global imbalances."
Germany has faced international pressure before to boost economic demand at home to balance out its trade position, and its economy has become less reliant on exports for growth in recent years.
Industrial orders in Germany dropped unexpectedly in February due to weaker foreign demand, particularly from euro zone countries, data showed on Tuesday.
(Reporting by Paul Carrel; Editing by Raissa Kasolowsky; Editing by Kevin Liffey)
