A0258
Title: Time to invest? German economic growth prospects in the 21 century
Authors: Christian Ochsner - German Council of Economic Experts (Germany) [presenting]
Lars Other - German Council of Economic Experts (Germany)
Leonard Salzmann - (Germany)
Thilo Kroeger - German Council of Economic Experts (Germany)
Abstract: According to recent estimates by the German Council of Economic Experts (GCEE), German potential output growth slowed down from an average level of 1.2\% in the previous decade to 0.9\% in 2022. A further decline to 0.6\% in 2027 is projected. The adverse German demography continues to cause a contraction of labour volume. In addition, stagnating total factor productivity growth and an old capital stock are unreliable sources of aggregate growth. Determinants of economic growth are investigated with the help of the new GCEE medium-term growth model developed by a forthcoming study. To identify effective policy measures, economic growth scenarios are specified for Germany until 2050. As the new model produces distributional estimates, this is to the best knowledge the first to attempt a quantification of long-run growth uncertainty in Germany. The unobserved components are estimated using a robust Bayesian approach. This allows the investigation of counterfactual effects of evolutions of specific policy control variables on the posterior distribution of potential output. Specifically, it analyses how alternative paths for policy variables such as interest rates, physical capital investment, and population growth affect German potential output growth in the long run. The analyses are supplemented with industry-level findings in order to identify priority areas and targeted, sector-specific policies that help to sustain economic growth in the 21st century.
