OECD urges Germany to implement reforms

Germany had failed to take advantage of low borrowing costs to boost investment that was essential to longer-term economic growth, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday.

Germany must also beef up its services sector so as to ensure that its economic backbone of manufacturing does not weaken, OECD researchers said in their latest country report.

"You have to invest in services, upskill the people in services," OECD chief Angel Gurria told a news conference in Berlin. "Otherwise, Germany's industrial success is going to slow down because you don't have the same level of productivity in the two areas."

A 'number of challenges' ahead

While acknowledging the success of Europe's biggest economy in recent years, with stable growth, a robust labor market and healthy public finances, the Paris-based institution pointed to "a number of challenges" facing Germany. And there was "little room for complacency," it argued.

“Labor productivity growth has weakened and has been low in the service sector. Stronger productivity growth will be critical to ensure rising living standards in the medium and long term as the labor force is set to fall more strongly than the population as a result of aging,” the OECD warned.

Germany's industrial prowess is built on its cars, chemicals and precision engineering, but the economic powerhouse is less successful in the services sector, which is regarded to be over-regulated and rigid.

Both the OECD and the International Monetary Fund (IMF) have repeatedly called on Germany to invest in infrastructure and education, a call IMF chief Christine Lagarde reiterated while on a visit to the country on Tuesday.

According to the OECD, another lesson to be learned from the overall decline of Germany's labor force was that the country's retirement age needed to go up.

Gurria also urged the government to integrate the many refugees who had arrived in Germany in recent months with special education, language courses and training initiatives.

That "requires a substantial upfront investment, but it pays," the OECD chief said.

tko/ hg (rtr, afp)