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

3.2.A Annex: Simulation of Germany's potential growth rate
Table 2.A.1 shows the estimated potential average growth for Germany and for the euro-area in
the 1990s together with its determinants. As can be seen, potential growth in Germany in the
second half of the 1990s fell short by around ½ percentage point of that of the Euro-area
countries, even if the cohesion countries are excluded. The difference stems almost exclusively
from the labour contribution to potential growth.
Table 2.A.1 : Potential Growth Rates + Contributions to Growth for Germany and the
Euro-area
1991-1995
1996-2000
Potential
growth
Labour
Capital
TFP
Potential
Growth
Labour
Capital
TFP
Germany
2.4
0.3
0.9
1.2
1.7
0.2
0.7
0.8
Euro-area (excl. DE)
2.1
0.3
0.8
1.0
2.5
0.8
0.8
0.9
Euro-area (excl. DE
+Cohesion countries)
1.9
0.2
0.7
1.0
2.2
0.6
0.7
0.9
Table 2.A.2. presents the results of a counterfactual analysis, asking the question what the
German growth potential would have been, if the growth determinants had developed similar to
those in the other countries of the Euro-area (excluding again the cohesion countries) and
compares these values to actually estimated potential growth rates. Unsurprisingly, the result is
similar to the one above, with “simulated” potential growth rates about ½ percentage point
higher than actual rates. A projection of the underlying growth determinants over the medium-
term shows that this growth gap is likely to persist also in the years up to 2005.
Table 2.A.2 Actual and simulated potential growth rates for Germany 1995-2005
95
96
97
98