Germany’s Current Account Surplus Does Not Harm Other Countries But Germany Is Nevertheless Breaking EU Rules and Should Try to Stimulate Private Investment by Reforming Corporate Taxation

Criticism of Germany’s current account surplus is overblown. The surplus is having no negative impact on other countries or on Germany itself, according to the results of a recent ifo study for the new research network EconPol Europe. Higher demand from Germany may help countries suffering from unemployment, but a lower surplus would boost interest rates due to lower capital outflows and would negatively impact countries with high debts as a result. “Germany’s current account surplus has grown because it has saved more, invested more abroad and contracted less new public sector debt since 2001, which is a good thing in view of its ageing population. The German government has improved its financial position by four percentage points in terms of economic output since 2001, while the private sector has seen a five percent upturn,” notes ifo President Clemens Fuest. This resulted in a current account surplus totalling 8.5 percent of gross domestic product in 2016.

The surplus was also driven by the weak euro exchange rate and the European Central Bank’s bond buying programme. Lower oil prices alone have accounted for 1.5 percentage points of economic output in recent years, while falling prices for other imports accounted for another 0.5 percentage points. Without these effects, Germany’s surplus would only have amounted to 6.5 percent of gross domestic product in 2016. Its current account surplus of 8.5 percent violates EU rules, which provide for an upper ceiling of 6 percent. To lower its surplus, Germany needs to improve the taxation conditions for corporate investment by introducing accelerated depreciation, enhanced offsetting of losses and tax breaks for research and development.

Enquiries: Prof. Clemens Fuest, 0049 89/ 9224 1257; Fuest@ifo.de
Prof. Gabriel Felbermayr, 0049 89/ 9224 1428; Felbermayr@ifo.de
Prof. Timo Wollmershäuser, 0049 89/ 9224 1406; Wollmershaeuser@ifo.de