Bundesbank: Germany facing labor market bottlenecks

Germany’s economy is on a solid upward path but weakening consumption growth and labor market bottlenecks could constrain its expansion in the coming years, the country’s central bank said.
The state budget, already in the black, will continue to generate surpluses without new spending measures and state debt could fall to 60 percent of GDP, the government’s coveted level, by 2019, the Bundesbank said in its fresh biannual economic projections.
The euro zone’s biggest economy has been the engine of the bloc’s recovery and the European Central Bank has repeatedly called on Germany to spend more to give the still fragile expansion a boost.
But the government, facing elections next fall, has rejected those calls, making fiscal prudence a key plank in its campaign.
“The highly favorable setting for household consumption at present looks set to turn slightly gloomy in the years ahead as demographic constraints soften employment growth and higher rates of inflation erode consumers’ purchasing power,” the Bundesbank said.
The economy is likely to face increasing labor supply shortages with the working age population continuing to shrink and even the influx of refugees is likely to have only a minor impact on the labor market in the coming years, the Bundesbank said.
Foreign trade, held back by weak global demand, will slowly pick up pace but this will not be enough to fully offset the slight downturn in domestic activity, the Bundesbank added.
Still, it lifted its adjusted GDP growth forecast to 1.8 percent for this year and next from 1.6 percent predicted in June, as the euro zone has proved to be more resilient to recent shocks than feared. Growth will then slow to 1.6 percent in 2018 and 1.5 percent in 2019, it added.
German newspaper Bild, meanwhile, heaped criticism on European Central Bank President Mario Draghi, a day after the ECB said it would extend its massive stimulus program for the euro zone.
“When does Draghi’s money bomb go off?” Bild asked, with a picture of the Italian’s face on a bomb with a lit fuse.
The ECB has already spent more than 1.4 trillion euros ($1.5 trillion) buying bonds and is at risk of running out of assets. Germany’s Bundesbank argues that this blurs a legal line and amounts to financing of government budgets, which would go beyond the remit of the central bank.
German Finance Minister Wolfgang Schaeuble, who regularly presses countries in southern Europe to shape up their economies with reforms, has called on the ECB to start unwinding its expansive monetary policy.
“The ECB chief is again putting billions at the disposal of crisis countries,” added Bild.

Source: Arab News