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

Table 1.11: Real Gross Disposable Income of Households
D
(1)
F
I
UK
US
JP
Gross Disposable Income of Households
1971-2000
3.0
2.3
2.0
2.8
3.1
3.1
1996-2000
1.3
2.1
0.9
2.8
3.4
0.7
(1)
Data up to 1991 West Germany.
Source : OECD Statistical databases

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1.2.7 Conclusions
Weakness in domestic demand has been the principal factor explaining the growth gap
between Germany and its European partners since the mid-1990s. In particular, private
consumption has been dragged down by sluggish growth of households’ disposable income as
employment growth was anaemic and the purchasing power of households was dented by an
increasing tax burden. Construction is the other factor behind the growth gap. The
performance of the construction sector in the second half of the 1990s was severely affected
by the onset of saturation effects in the New Länder, the phasing out of generous public
subsidies for construction investment, especially in the New Länder, and a slow rate
population growth.
Over-capacity together with budgetary restraint will continue to put a drag on construction
investment for some years to come, particularly in the Eastern part of the country. In the
West, on the other hand, construction investment could revert to positive growth rates in the
medium term as low vacancy rates are starting to kick in for some regions and the demand for
new business premises revives. As serious as the consequences of the ailing construction
sector in Germany on output and employment growth may be, in some sense they appear
inevitable. By contrast weak employment growth, which has in the more recent past
constituted a serious obstacle to a more pronounced rise in economic welfare, is an area
which needs to be tackled through economic reforms. Therefore, there seems to be a need for
a wider-ranging analysis of the system influencing the development of the labour market (e.g.
macro-economic policy mix, competitiveness tax benefit system, wage formation processes,
employment protection regulation etc.). Finally, the hypothesis of a sustained loss in
competitiveness as a major factor in the growth slowdown of the 1990s is difficult to confirm
on the basis of the evolution of the external sector and needs analysed in more detail.

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