U.S. News

German Growth Risks Masking Need for Reform


Germany's economic upswing is broad based and could last several years but the expansion risks masking structural problems in the economy that need tackling, ratings agency Moody's said in a report released on Thursday.

Rising employment and disposable income were supporting private consumption, which was enjoying an economic environment that had improved dramatically since last year, Moody's said.

"As the economic upswing seems very broad based and relatively (price) stable, it could -- without external shocks -- well continue for several more years," the ratings agency said in its 'Germany Sovereign Annual Report'.

Moody's has an Aaa credit rating for Europe's biggest economy.

The upswing could result in mainly cyclical improvements to government finances as higher tax revenues and employment could cover up structural problems.

"This could lead to the postponement of structural government expenditure savings, which are essential to prepare for demographic change," Moody's said.

Germany's old-age dependency ratio -- the proportion of retired people relative to workers -- would rise strongly in the next 10-40 years.

"The Grand Coalition must not halt its reform efforts. On the contrary, the situation seems to be particularly favorable for the two large coalition parties to continue joint efforts and decide on fundamental structural changes," Moody's said.

Further pension reforms were "a must", the ratings agency said, adding that Germany should also reduce non-wage labor costs.