Lagarde Urges Germany to Lift Public Spending Amid Trade Surplus

(Bloomberg) -- IMF Managing Director Christine Lagarde encouraged Germany to step up government spending to boost growth, noting the country’s current-account surplus is too large.

The International Monetary Fund sees a “particularly strong case” for Europe’s biggest economy to take advantage of its budget surplus to invest more in public infrastructure such as roads and railways, Lagarde said Wednesday in a blog post, adding that the government shouldn’t rule out running a deficit. The Washington-based lender has also advised Germany to spend more on reforms that help women go back to work, such as more childcare centers, she said.

“Our view is that higher growth in the long term will improve prosperity, helping to offset the costs of an aging society,” Lagarde said, noting the nation’s fiscal position is healthy and its public debt ratio is falling rapidly.

Lagarde reiterated the fund’s view that Germany’s current-account surplus is too large. In its annual report on trade imbalances, the IMF found that Germany led the world in 2016 with a $289-billion current-account surplus. “We need to ask why German households and companies save so much and invest so little, and what policies can resolve this tension,” she said.

President Donald Trump has complained about Germany’s “massive” trade surplus with the U.S., though he has been more reserved in his criticism of Germany than he has of China.

Lagarde welcomed the preliminary deal that Chancellor Angela Merkel announced last week to form a coalition government with the Social Democrats. Germany’s support for economic reforms to the euro zone is essential, she said.

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