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).
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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.
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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
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