Germany must take measures to boost consumption at home next year if foreign demand for goods decreases, Chancellor Angela Merkel said today.
Economists say German export growth, long a key support for Europe's largest economy, is likely to decline next year as demand abroad weakens and the strength of the euro makes firms' goods more expensive in markets outside the euro area.
In her weekly video podcast, Ms Merkel said German growth was built on two pillars: exports and domestic consumption.
"It's this second pillar in particular we need to strengthen next year if the conditions for foreign trade become more complicated," she said.
Boosting wages is one way of supporting domestic demand, though Ms Merkel said only that cuts to indirect taxes that fund jobless benefits would put more money in consumers' pockets.
On Friday, the lower house of parliament voted to reduce the mandatory contribution rate for unemployment insurance to 3.3 per cent of gross wages from January next year, from 4.2 per cent. Contributions are split between employers and workers.
Merkel, who in October urged businesses to keep their costs under control, said the cut would bring €12.3 billion ($17.97 billion) of relief to firms and workers, and reduce the average earner's contributions by €270 per year.
She added the contribution cut meant Germany's combined burden of non-wage labour costs would sink to 39 per cent of gross wages. Four years ago it was around 42 per cent.