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Germany

 Flag of Germany
Last reviewed: 16 November 2009

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ECONOMY

Basic Economic Facts (2007)

GDP: €2,492 bn
GDP per head: €30,342
Annual Growth: 2.5%
Inflation: 1.3% (2008)
Economic Structure: Services 70%, Industry 30% (major sectors: car manufacturing, engineering, chemistry), Agriculture 1%

As the world’s third largest economy Germany has been the largest exporter for six years and the second largest importer whilst China is picking up. Germany is also the UK’s second largest export market worldwide, after the US. Germany’s economy grew by 2.6% in 2007 and around 1.5% in 2008. The Government expects the economy to shrink by 5% tin 2009 and to grow by 1.2% next year. Following record trade in 2008 this previous strength of the German economy stemming from strong global demand has led to a strong fall in production. Singe the middle of the year production has picked up again. Private domestic demand has however remained relatively stable at a relatively low level. The previous upswing has positively effected the labour market and wages. Unemployment fell from 5.2 million in 2005 down to 3.0 million in 2008. Temporary measures such as short time working allowance (KUG) and efforts to retian their skilled workers have so far limited the increase in unemplo9yment, which now stands at 3.23 million (ILO: 3.15 million, 7.2%).

Whilst getting close to a balanced budget in 2007, the Government had to give up this long term aim of achieving the first balanced general government budget in 40 years due to the financial crisis, which required fiscal stimulus spending and falling tax revenues. The two packages amount to €80bn spent over two years in 2009 and 2010 (i.e. 3% of GDP over two years). The financial crisis has mainly impacted on public Landesbanks whilst the public savings banks proved relatively stable. However, some private banks including German’s second biggest institute Commerzbank as well as others such as IKB and Hypo Real Estate required government bailouts. The new CDU/CSU-FDP (i.e. centre-right/liberal Government) has agreed some tax cuts to promote growth during the next year and postponed a concrete consolidation strategy.

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