Germany Economy Facts

Economical overview

Since Germany, for a couple of decades around the turn of the millennium, was seen as an economic problem child among the EU countries, the German economy with its stable growth during the 2010s has become an example. While several other European countries are still plagued with large debts and other economic problems, Germany has shown steady, albeit modest, growth.

Germany is one of the world’s largest economies and one of the leading exporting countries. At the same time, the country is also dependent on imports of important raw materials such as energy. The highly developed industry has long played an important role for the economy, as is the service sector, which today accounts for four-fifths of the gross domestic product (GDP).

  • Countryaah.com: Major imports by Germany, covering a full list of top products imported by the country and trade value for each product category.

Germany has adhered to the so-called social market economy – welfare expansion, government finances, stable currency and low inflation – which was the system used for about 40 years with success in West Germany. By contrast, the East German economy was on the brink of collapse in the years before Germany’s reunification in 1990.

Following the reunification, the state’s budget deficit grew sharply as a result of huge sums of state funds being transferred to eastern Germany to reduce the differences between east and west. Although the former East German territories regained some of the lead in the West, and a few years into the 2010s contributed to a larger proportion of the country’s GDP (15%) compared to the reunification (11%), parts of East Germany are still economically disadvantaged compared to the west. While the three richest western states – North Rhine-Westphalia, Bavaria and Baden-Württemberg – together accounted for over half of the country’s GDP, several of the eastern states had significantly lower per capita GDP than the German average.

  • Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including DE which represents the country of Germany. Check findjobdescriptions to learn more about Germany.

The costs of reunification and the weakening economy during the 1990s led to a sharp increase in central government debt, while the central government budget was drawn with large deficits. At the beginning of the 2000s, economic austerity and changes in the welfare systems and labor law began. This took place mainly within the framework of Chancellor Gerhard Schroeder’s Agenda 2010 program (see History). For several years, wage increases have been modest, partly because of high unemployment that culminated in 2005. The tightening did not lead to households getting more to shop for, but the economy weakened further. Between 1991 and 2007, GDP grew by an average of 1.3 percent a year – one of the lowest figures in the EU.

But the reforms helped boost employment and in 2009 became the first year that unemployment did not increase since the mid-1970s. Despite this, GDP shrank by more than 5 percent in the same year as a result of the global financial crisis. In an attempt to counter the economic downturn, the government adopted in early 2009 an economic stimulus package worth € 50 billion. The money would be used, among other things, for road construction, railways and schools and also included tax relief.

A turnaround in the economy came in 2010 when GDP grew by about 3 percent – the highest rate of growth since the reunification. But the positive picture was obscured by the budget deficit, which in the wake of the financial crisis had increased to around 4 percent of GDP, higher than the euro zone’s 3 percent limit. To remedy this, the Federation Day in 2010 adopted a savings package of € 80 billion, mainly with cuts in the public sector and reduced compensation in social security systems.

The German economy continued to show better results in the mid-2010s than the vast majority of euro zone countries and the proportion of residents who had a job was among the highest in the EU. Sales to emerging economies, especially China, contributed initially to the positive development. However, as the emerging economies slowed down on imports of German goods due to poor economic prospects, the German economy could continue to grow spurred by high domestic consumption, low interest rates and low energy import costs due to low oil prices.

That the budget should be in balance, without deficit and without high leverage, continued to be an important guiding principle for the government during the 2010 century, both within the country and in the euro area, where the German line has come to dominate. Critics have argued that tight economic policies are hampering growth and that too little resources are being used for investments in, for example, infrastructure. Another problem that could threaten economic development is the country’s aging population, which in a number of years is expected to lead to a reduction in the workforce.

But in 2019, the German economy showed clear signs of a slowdown. Growth was the lowest in six years and it seemed that the good economic development of the last decade was nearing its end. This was largely because the export-dependent economy was affected by the ongoing US-China trade war and Britain’s imminent Brexit. In addition, the car industry, which was so important to the economy, had difficulties converting to electric car manufacturing etc

Some analysts, both within the country and abroad, pressed for the government to put in place stimulus measures to speed up the economy and depart from the strict fiscal policy, the so-called black zero policy, not to debt. In the coalition government, Merkel’s Christian Democrats have been far from agreeing with the more left-wing SPD, which would have liked to invest more in social welfare.

For the already weak economy, the corona pandemic that hit the country in early 2020 was a severe blow. The global downturn in world trade affected the German economy at the same time, as did the two-month shutdown of society from March 2020 to stop the spread of infection. The tourism sector and the restaurant and hotel industry were particularly affected and Germany was expected to enter the deepest recession of 70 years. In the spring, the government tried to counteract the consequences of the corona crisis on the economy by presenting two gigantic financial aid packages. One in just over one billion euros included support for companies through increased opportunities for loans and measures to support healthcare. The second of more than EUR 130 billion included, among other things, a reduction in VAT and a contribution to families with children of EUR 300 per child.

FACTS – FINANCE

GDP per person

US $ 48,196 (2018)

Total GDP

US $ 3,996,759 million (2018)

GDP growth

1.4 percent (2018)

Agriculture’s share of GDP

0.7 percent (2018)

Manufacturing industry’s share of GDP

20.8 percent (2018)

The service sector’s share of GDP

61.5 percent (2018)

Inflation

1.5 percent (2019)

Government debt’s share of GDP

61.7 percent (2018)

Currency

Euro

Germany Economy Facts

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