OECD Economic Survey of Germany 2020 Presentation

2020 OECD ECONOMIC SURVEY OF GERMANY Investing to foster the recovery 8 December, 2020 | Berlin - Paris http://www.oecd.org/economy/germany-economic-snapshot/ @OECDeconomy

@OECD

Key messages • A strong government response to the pandemic has reinforced health system capacity while protecting jobs and firms.

• The economy nonetheless suffered a severe recession in 2020.

• Fiscal support for the recovery needs to be maintained, including through further steps to increase public investment.

• Progress on climate change policy must not be derailed.

• Much potential remains for unleashing the benefits of digital transformation by improving communication networks, developing relevant skills and removing barriers to adoption of new technology.

2

The economy suffered a severe recession in 2020

3

Economic activity contracted due to the pandemic Real GDP % change from 2019 Q4 0

0

-5

-5

-10

-10

-15

-15 2020Q2

-20

-20 2020Q3

-25

GBR

FRA

ITA

CAN

DEU

USA

JPN

-25

Source: OECD Economic Outlook database

4

The second wave of the pandemic has disrupted the recovery Real GDP Index 2019 Q4 = 100, s.a.

Index 2019 Q4 = 100, s.a.

103

103

100

100

97

97

94

94

91

91

88

88

85

2019

2020

2021

2022

85

Source: OECD Economic Outlook database 5

Increases in unemployment were cushioned by short-time work Unemployment rate % of labour force 15

15 Jan 2020

May 2020

12

12

9

9

6

6

3

3

0

Germany Germany

Italy

France

OECD

Sweden

United States

Canada

Spain

0

Source: OECD Short-Term Labour Force Statistics database 6

There is fiscal space to support the recovery General government financial balance % of GDP 4

4

2 0 -2

-4 -6 -8

-10

2

1 2 3 4 5 6 7 8

2017

2018

2019

2020

2021

0 -2

-4 -6 -8 2022

-10

Source: OECD Economic Outlook database

7

Recommendations to support the recovery • Stand ready to give further support if the recovery is weak.

• Gradually remove fiscal support once the recovery is well underway.

• Pursue planned fiscal consolidation while addressing longterm challenges.

• Reduce taxation of labour income, while strengthening environmental, property and capital income taxation.

8

Boosting public investment to support a sustainable recovery

9

Public investment is relatively low General government investment % of GDP, 2019 7

6

6

5

5

4

4

3

3

2

2

1

1

0

0

PRT ESP GRC ITA IRL DEU BEL ISR MEX GBR AUT CHE LTU DNK NLD ISL USA SVK FRA OECD SVN CAN AUS TUR FIN POL LUX CZE SWE EST LVA KOR JPN NZL NOR HUN

7

Source: OECD Economic Outlook database

10

Public investment is picking up, but more can be done at the local level Net Investment % of GDP 0.6

0.5 0.4 0.3

Local government Regional government (Lander) Central government General government

0.6

0.5 0.4 0.3

0.2

0.2

0.1

0.1

0

0.0

-0.1

-0.1

-0.2

-0.2

-0.3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

-0.3

Note: Net investment is public gross fixed capital formation less depreciation Source: OECD national accounts database 11

The quality of infrastructure is good Quality of overall infrastructure 7

2017

7 6

5

5

4

4

3

3

2

2

1

1

MEX SVK POL LVA ITA GRC IRL HUN SVN CZE AUS CHL NZL BEL ISR LTU TUR GBR OECD NOR CAN EST ESP ISL LUX SWE KOR PRT DEU DNK USA AUT FRA FIN JPN NLD CHE

6

Source: World Economic Forum, The Global Competitiveness Index dataset 2007-2017

12

Renewables are increasing, but coal is still an important source of energy Gross electricity generation by energy source TWh 400

Coal

350

Nuclear energy

Renewables

400

Natural gas

350

300

300

250

250

200

200

150

150

100

100

50

50

0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

0

Source: AGEB, https://ag-energiebilanzen.de/28-0-Zusatzinformationen.html

13

Transport emissions have declined little Greenhouse gas emissions by sector million tonnes of CO2 equivalents

1. Emissions from households, commerce, trade & services, agriculture, waste and waste water and other emissions.

2. Short-term forecast for 2018.

Source: German Federal Environmental Agency; Federal Law Gazette, December 2019 14

Recommendations to boost investment and pursue a sustainable recovery • Bolster local planning capacity through inter-municipal cooperation, training and expanding staffing.

• Further increase spending on high quality public investment, including through funding to municipalities.

• Provide low-emissions alternatives through expanding public transport and charging networks, good urban planning, and facilitating telework.

• Make emissions pricing more consistent across sectors and fuels.

15

Increasing labour market inclusion

16

40 40

30 30

20 20

10 10

0 0

LUX COL BEL GRC DNK NOR SVN ITA NZL TUR SWE HUN PRT IRL ISL POL ESP AUS CHL LTU OECD FRA SVK NLD CZE AUT CHE DEU GBR CAN USA MEX FIN LVA ISR JPN EST KOR

The gender wage gap is large

%, 2019

Source: OECD (2020), Gender wage gap (indicator) 17

Women are under-represented in management positions Female share of management employment %, 2018 60

50

50

40

40

30

30

20

20

10

10

0

0

KOR TUR JPN LUX NLD DNK CZE ITA CHL GRC DEU AUT FIN SVK ESP BEL PRT FRA CHE ISR CAN NOR IRL EST MEX GBR AUS SVN HUN SWE LTU USA ISL POL LVA

60

Source: ILOSTAT

18

There are widespread occupational entry restrictions Share of occupations subject to licensing and certification %, 2015 80

80

Certified

70

70

Licensed

60

60

FIN

SWE

PRT

DNK

ITA

FRA

BEL

GRC

SVN

LVA

MLT

EST

ESP

GBR

CZE

LUX

EU

0

POL

0

LTU

10 BGR

10 HRV

20

AUT

20

SVK

30

ROU

30

HUN

40

NLD

40

IRL

50

DEU

50

Source: Koumenta and Pagliero

19

Recommendations to increase labour market inclusion • Strengthen legal rights to flexible working arrangements for all employees, including teleworking where possible.

• Reduce marginal effective tax rates for low income earners.

• Liberalise occupational entry conditions while preserving the strengths of the vocational education and training system.

• Reduce strictness of rent controls in markets where more supply is needed, such as Berlin.

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Unleashing the benefits of digital transformation

21

Germany is characterised by a low share of high-speed fixed broadband connections Fixed broadband subscriptions with contracted speed faster than 100 Mbps December 2019

TUR GRC COL MEX AUS AUT ISR GBR EST DEU CZE FRA NZL SVK SVN IRL CAN NOR OECD FIN DNK ITA NLD LTU CHL POL LUX USA LVA BEL CHE HUN ISL ESP PRT SWE KOR

% 100 90 80 70 60 50 40 30 20 10 0

% 100 90 80 70 60 50 40 30 20 10 0

Source: OECD Broadband Portal

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The low share of high-speed fixed subscriptions corresponds to a low share of fibre subscriptions Technology mix of fixed broadband subscriptions in Germany and the OECD 2009 – 2019 Fibre

Germany

Other

Cable

DSL

OECD

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: OECD Broadband Portal

23

German mobile broadband subscribers consume less data than the OECD average Mobile data usage per subscription GB per month 25

2019

GB per month 25 20

15

15

10

10

5

5

0

0

SVK CZE COL GRC CAN BEL NLD NZL DEU ESP MEX PRT HUN GBR LUX JPN NOR OECD TUR SVN ITA AUS FRA CHE KOR POL SWE IRL DNK CHL ISL EST LTU LVA AUT FIN

20

Source: OECD Broadband Portal

24

Accelerating the adoption of advanced ICT tools would foster innovation % of all firms, 2019 %

100

Basic

Process

Advanced

Germany

90

OECD

Best performing country

%

100 90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

Broadband Website

Epurchases

E-sales

CRM

ERP

Social media

Cloud High-speed Big data computing broadband analysis

0

Source: OECD ICT Access and Usage by Businesses database

25

Investment in ICT and Knowledge-Based Capital is low % of GDP, 2016 16

16

Other KBC assets, incl. organisational capital and training R&D and other intellectual property products Computer software and databases ICT equipment

14 12

14 12

10

10

8

8

6

6

4

4

2

2

0

DEU

GBR

FIN

FRA

NLD

BEL

USA

SWE

0

Source: OECD calculations based on OECD National Accounts database and INTAN-Invest data

26

Business dynamism has slowed

2007 = 100 130

2007 = 100 130

120

120

110

110

100

100

90

90

80

80

70 60 50

70

DEU entries

60

OECD entries¹ 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

50

1. "OECD entries" includes data for Belgium, Denmark, Finland, France, Germany, Iceland, Italy, Japan, Netherlands, Norway, Sweden, United States.

Source: OECD, Timely indicators of entrepreneurship 27

Venture capital is relatively low

% of GDP, 2019 0.18

0.7

Seed

0.16 0.14 0.12

Start-up and other early stage

0.6

Later stage venture

0.5

0.1

0.4

0.08

0.3

0.06

0.2

0.04

CAN ISR USA

KOR

EST

FIN

GBR

DNK

FRA

CHE

HUN

BEL

SWE

NLD

DEU

IRL

ESP

NOR

NZL

AUS

LUX

JPN

AUT

POL

PRT

ITA

SVK

GRC

CZE

0

LTU

0

SVN

0.1 LVA

0.02

Source: OECD Entrepreneurship Financing Database

28

Progress on digital government needs to continue OECD Digital Government Index 2019 0.8 0.7

0.6

0.8

Proactiveness

User-Driven

Open by default

Government as a platform

Data-driven public sector

Digital by design

0.7

0.6

KOR

GBR

COL

DNK

JPN

CAN

ESP

ISR

PRT

FRA

NZL

NOR

LUX

ITA

SVN

OECD

EST

LVA

AUT

0

NLD

0

CZE

0.1 IRL

0.1 CHL

0.2

BEL

0.2

DEU

0.3

LTU

0.3

FIN

0.4

GRC

0.4

ISL

0.5

SWE

0.5

Source: OECD Survey on Digital Government 1.0

29

The returns to foundational skills are high Percentage change in wages associated with a one standard deviation increase in skills 30

30 Returns to literacy skills

Returns to numeracy skills

USA

IRL

DEU

ESP

GBR

KOR

AUS

CAN

POL

JPN

NLD

AUT

0

EST

0

SVK

5 Pooled

5 FRA

10

BEL

10

FIN

15

DNK

15

ITA

20

NOR

20

CZE

25

SWE

25

Source: Hanushek, E. et al. (2015), “Returns to skills around the world: Evidence from PIAAC”, European Economic Review 30

Germany lags on use of ICT tools in schools and teachers' preparedness Percentage of students in schools whose principal agreed or strongly agreed with statements about the school’s capacity to use digital devices 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

OECD average

OECD average

Germany

OECD average

Germany Germany

Number of digital devices connected to the Internet is sufficient

Number of digital devices for instruction is sufficient

OECD minimum

OECD average

OECD maximum

OECD average Germany

Germany

An effective online learning support platform is available

Teachers have the necessary technical and pedagogical skills to integrate digital devices in instruction

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Source: OECD calculations based on PISA (2018)

31

Recommendations to unleash the benefits of digital transformation • Shorten administrative approval times for communication network deployment, including obtaining rights of way.

• Support competition through facilitating national roaming agreements. Consider all market participants when existing spectrum licenses expire.

• Improve conditions for firms to invest in knowledge-based capital, including by reviewing the cap for R&D tax incentives.

• Accelerate progress towards digital government and a datadriven public sector, and systematically collect and use data from e-procurement processes.

• Increase ICT training for teachers. Introduce computational thinking earlier, particularly benefitting girls.

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For more information

http://oe.cd/germany @OECDeconomy @OECD

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The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

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