Germany: Industrial, Labur, Tax Reforms Essential to Revive Growth Amid Geoplitical Challenges

Source: Eurostat, US Energy Information Administration, Scope Rathings. Highlighting the 10 Largest Eu Economies and the Us. Midpoints Refer to eu averages. Competitive Tax Regime and Labor Market Reforms to Encouroge Private Investment A more competitive personal and corporate tax regime could Help raise private-sector investment and narrow the large investment gap, which scope have entime. Of Other Aaa Scope-Rated Sovereigns.

Germany’s Corporate Tax Rate Is High At 29.9%, Above Those of Italy (27.8%), France (25.8%), The US (25.6%) and The UK and Spain (Both 25%). Similarly, The Tax Wedge-The Differentnce Between An Employee’s Total Labour Cost to Their empleyer and his/her Net Take-Home Pay-Is One of the Highhest Among Developed.

In Addition, Greater Investments in Education and Labour Market Reforms Could Enable Higher WorkForce Participation by Women and Migrants. Given Germany’s Shortage of Skilled Workers, Reforms to Encouroge The Older Generation to Work After Retirement Wuld Support Labour Supple and Ease Fiscal

Reducing Bureaucracry and Simplifying Regulation to Support Private Sector Investment Have Been Recognized As A Priority by Most Political Parties, Althoughhhhh Any Implement of Reformation of Reformal.

These Structural Reforms Are Still Critical to Raising the Economy’s Medium-Term Growth. Combined with a potential reform of the debt-Brake ru to the allwhtth-sencing public-sector investment, this wold create addyed-excala to the exaCe-to-help aded the rising. Long Term Economic Resilience.

Rising DEFENCE AND CONTINUOUS Welfare Pressures Germany Currently Meets Nato’s 2% Of GDP Military Spending Target Thanks to A Eur 100bn Special Fund Agreed In 2022. MOST OF THUS FUND HAS ALRIDADY BEEN ALLOCATED TO DOFENDE However, from 2027, An Additional Eur 30bn A Year Will Be Needed, Requiring Higher Government Revenues, Spending Cuts or New Debt Issuance.

In 2024, Defense Spending Accounted for 11% of the Federal Budget. Without Additional Revenue Sources, This Share Wuld be to Rise to Around 18% to Meet the Current Nato Target. If Nato Members Were to Increase The Target to 3% of GDP, THEN 27% OF THE CURRENT BUDGET Wuld Have to Be ALLOCATED TO DEFENCE SPEENDING.

At Same Time, None of the Larger Political Parties Has Proped Meaningful Reforms to Address the Rising Pension Burden, Proposals That Are Unpopular in Election CamPaal Fights Bur. AROUND 27% of the total 2025 Budget will be spent on pensions and this Share Could Double by 2050 with the Old Age Dependence Ratio rising to more than 50% from 36% today.

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Eiko sievert is a senior Director in Sovereign and Public Sector Ratings at Scope Rathings Gmbhand a member of the Rating Agency’s Macroeconomic Council.