LIVE MARKETS-Are Germans too old to rearm Germany?

Economists are closely watching Germany’s investment cycle, including defence spending, for its potential to boost growth at home and across emerging Europe.

However, Germany’s shrinking workforce remains one of the biggest constraints on potential growth, according to the Institute of International Finance (IIF).

“Pension reform is therefore both a fiscal measure and a potentially important supply-side reform,” said Ugras Ulku, head of EM Europe Research at IIF.

“As large cohorts retire over the coming decade, labour shortages could become an increasingly binding constraint in manufacturing, construction, engineering, healthcare, and public services,” he added.

“The constraint would affect both private production and the government’s ability to execute its infrastructure and defence agenda.”

Despite weak growth, Germany’s labour market remains unusually tight due to demographic pressures, with a pension commission recommending a gradual increase in the retirement age towards 70.

(Stefano Rebaudo)