The forecast for economic development, even over the next one or two years, is fraught with uncertainty. It is therefore impossible to predict exactly how Germany’s economy will look in 20 years’ time. There are, however, factors that will have a strong influence on the country’s future economic performance, and that can be gauged today. The first of these factors is demographic change: for many years we have been witnessing a rise in life expectancy coupled with a decline in birth rates, altering the ratio of retired to working population. This will present a huge challenge for economic policy and social security systems over the coming years. Increased education efforts and innovation are therefore of vital importance if we wish to maintain the current standard of living despite a shrinking labour force.
The sustainability of public finances is of equal importance: the country’s revenue and expenditure must be structured in such a way as to prevent future generations from being buried beneath a mountain of debt. For this purpose, a “debt brake” was written into Germany’s constitution, but further efforts will be required over the coming years to ensure this is adhered to.
If policymakers are able to rise to the challenge of demographic change and accomplish the necessary reforms while also ensuring the sustainability of public finances, then even in this rapidly changing global environment there is a good chance that Germany will remain economically successful and manage to maintain – or even improve – current living standards.
Dr Benjamin Weigert, Secretary General of the German Council of Economic Experts answered this question.