Germany: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany

International Monetary Fund

No 2022/229, IMF Staff Country Reports from International Monetary Fund

Abstract: This 2022 Article IV Consultation with Germany discusses that before Russia’s invasion of Ukraine, economic activity in Germany was firming up. Uncertainty is very high, with risks to the baseline growth forecast skewed downward and risks to the inflation forecast skewed upward. The greatest threat is a persistent shut-off of the remaining Russian gas exports to Europe, which could cause sizable reductions in German economic activity and increases in inflation. In response to surging energy prices, the government is expanding income support for vulnerable households, cutting fuel taxes, and providing liquidity support to firms. Persistently-high inflation and fears of a de-anchoring of inflation expectations can prompt major central banks to tighten policies faster than currently expected, potentially triggering a sharp tightening in financial conditions and corrections in asset prices. The 2022 Financial Sector Assessment Program assesses the German banking sector generally resilient to shocks, but points to pockets of vulnerability and downside risks that require close monitoring and call for some additional buffers for less capitalized banks. Given continued rapid house price gains, the recently activated capital-based measures should be supplemented with borrower-based measures, such as supervisory guidance on a loan-to-value cap.

Keywords: inflation pressure; headline consumer price inflation; gas market; money market rate; staff report projection; assessment methodology; Energy prices; Inflation; Commercial banks; Cooperative banks; Income; Global; Europe (search for similar items in EconPapers)
Pages: 88
Date: 2022-07-20
New Economics Papers: this item is included in nep-cis and nep-ene
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