European Economy. Economic Papers. Germany's growth performance in the 1990's

99
00
01-05*
Observed potential growth
2.0
1.7
1.5
1.7
1.7
1.9
1.9
Potential growth if growth determinants had been
similar to those of Euros area countries (excl.
cohesion countries)
2.0
1.9
2.1
2.1
2.2
2.4
2.4
Source: Ameco, Commission services calculation, * projection
The counterfactual analysis of Table 2.A.2 can be used to decompose the overall growth gap
into its components. As shown in Table 2.A.3, once again developments in the labour market
can be identified as the exclusive growth factor, where Germany fell behind. By contrast, the
investment ratio in Germany was even relatively higher than in the other countries. Most
important in explaining the growth gap in the 1990s is clearly the development of the NAIRU
(which remained fairly stable in Germany, whereas it fell in most other Euro-area countries) and
of the labour market participation rate. Combined, these two factors reduced the cumulative
growth rate in the 1990s by 1.6 percentage points. For the period from 2001 to 2005, these
factors will continue to play a crucial role. However, in the future slow population growth in
Germany and a relative decline in investment will become increasingly important.
Table 2.A.3: Contributions to the Cumulative Growth Differential between Germany and
the Euro-area (excluding Germany and the Cohesion Countries)
1991-2000
2001-2005
Population of Working Age
0.1
0.5
Participation Rate
0.7
0.7
NAIRU
0.9
0.4
Investment to GDP Ratio
-0.3
0.6
Cumulative Growth Differential
1.4
2.2

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3.3 Product markets: Obstacles to growth in individual markets
Previous sections showed clearly that the labour market is the area most critically in need of
reform. However, obstacles to higher growth in Germany can be found also in a number of
other areas that a comprehensive structural reform should not lose sight of. Ample room for
regulatory improvements can be found, for instance, in the further liberalisation of product
markets, the government sector and the removal of outdated regulations. The modest ambition
of this section lies in giving a brief shopping list of reform candidates to lift the German growth
potential. It is refrained here from the difficult task of quantifying the benefits of each potential
reform or of undertaking comparisons with other countries.