Net exports unlikely to carry future German growth

With structural headwinds to German exports, the contribution of net exports is expected to be neutral at best over the coming five years. This shift in growth composition should be accompanied by a growing tide in favour of wage earners, in relation to corporate profits. 

The wage share, under pressure for the last 20 years, and possibly income inequality, should thus stand a chance of reversing over the coming years. This, in turn, should result in historically high unit labour cost growth in Germany of around 1.5%, suggesting a gradual convergence with other euro area countries. As a result, the currently excessive current account surplus should gradually narrow, much to the delight of observers that have been calling for a German rebalancing for years. 

While there is much economic logic to this scenario for the German economy, it is believed that policy will need to play its part, especially in terms of the investment outlook which could put the German economy on a firmer and more sustainable footing. The elections in 2017 are in this respect likely to be a watershed moment for German economic policy. This will be all the more interesting given that a new generation of German politicians leaders may be about to come into the limelight.