The International Monetary Fund on Tuesday warned Germany against a slide into long-term low growth levels, dpa reported.
The German government must pay special attention to problems generated by its shrinking population, to its education and training infrastructure and to the lack of a strong climate to foster innovation, in order to secure its economy with long-range growth prospects, the IMF said in its report.
In addition, Germany must reduce its dependence on exports and stimulate domestic demand. Legislators should not go overboard in cutting back public budgets, to avoid strangling current growth.
The IMF praised Germany for the "impressive recovery" of Europe's largest economy after the recession and economic crises of past years. On a short-term basis, Germany even exceeded expectations: 2011 growth is projected at 3.2 per cent, compared to earlier estimates of 2.5 per cent.
But those figures are expected to cool by next year, when only 2 per cent growth is expected instead of the 2.1 per cent that had been projected by a United Nations economic report in April.
Looking further into the future, Germany's economic growth is expected to shrink down to 1.25 per cent a year. A major reason is the ageing of the German population and the falling number of workers. The government should try to use tax policies to motivate more people into the work place.
The productivity of the key adult working-age group must be boosted through reforms in the education system, including more provisions for care of young children and more opportunities for life-long learning and re-schooling, the IMF said.
In addition, the German economy needs to create a better climate for investments to attract investors to more risk-laden ventures.
The IMF pointed to "pockets of vulnerability" in Germany's financial world but said the system as a whole has stabilized.
"German banks remain highly leveraged, achieve low profitability, and the large banks remain highly dependent on market funding," the report said.
The IMF said that while banks have limited overall direct exposure to the euro-zone debt crisis, "some banks are more exposed than others and indirect effects through banks outside of Germany could have cascading effects".