German Economy Germany has a free market economic system, but it does have provisions for those who are unable to work, ie. the unemployed or elderly. It is the largest economy of Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP (PPP). Germany is one of the original founding members of European Union and Eurozone.
Germany has been one of the countries that has the largest amount of exports( Till 2009 it had the highest) . Germany’s Economy has remained stable even during periods even during massive global crisises as they don’t lose focus of their goals irrespective of the situation. It is the largest market in Europe. Germany has a major share in European GDP ( 20%) , and forms 17 % of the European population. The average growth rate of the GDP has been at 1.8 %, which acts as a proof of the potential of its economy. The German economy is both highly industrialized and diversified; with equal focus placed on services and production.Capitalist EconomyThe idea is to have a basically capitalist economy but make it the state’s job to mitigate its negative aspects by providing strong regulation against things like monopoly abuse, and a strong social safety net.
A special feature in Germany is codetermination policy- in large companies, half of the board of directors must consist of representatives elected by the employees, usually trade union functionaries. This is believed to result in a less antagonisic climate between employers and employees and fewer strikes than in other countries.The German model of prosperity supports allowing local entrepreneurs to develop and initiate new industries which help the people to communicate better with the world and to meet their needs in becoming current world players in the technology industries. The flow of goods exported from Germany are grouped into sectors, and Germany has the dominant role in exporting for markets which specialize in goods which are the result of patents, niche markets and new innovations and inventions within the country. Sectors of German economy Only 1% of the GDP is formed by the agricultural sector and employs around 1.3% of the population.
The improvement in agriculture has mainly come due to the subsisdies provided by the govt. . Its main products are milk, pork, livestock, sugar beets and cereals.There seems to be a preference of organic agriculture. . Currently, Germany is going through a deindustrialisation phase of its Food sector. .The industrial sector amounts to about 30% of GDP – a dramatic decline from 51% of GDP in 1970.
The automotive industry is one of the country’s largest industrial sectors, but the German economy also retains other specialised sectors, including electric and electronic equipment, mechanical engineering and chemical products. The decision to abandon civil nuclear energy by 2022 is likely to change the industrial landscape in the near and distant future.The service sector amounts to about 70% of GDP and provides work for 70% of the German workforce. The German economic model relies heavily on a dense network of small and medium-sized enterprises (SMEs): more than 3.6 million SMEs employ 68% of salaried workers in Germany.Fiscal and Monetary policiesFiscal PolicyIn 2010, Germany cut 14 million euros in taxes as agreed by the outgoing government coalition of Christian Democrats and Social Democrats. In 2011, they are aiming to cut 24 million euros in income taxes benefiting in particular low- and middle-income earners as well as families. There are still many details to go into this plan, but regardless Germany’s goal is to cut income taxes tremendously.
This represents an expansionary fiscal policy as Germany is decreasing taxes. With expansionary policy comes the goal to close a recessionary gap, decrease unemployment, and stimulate the economy. Reducing taxes creates an opportunity for the economy to adjust itself while government spending can create new jobs. With more jobs and less taxation on income, this will help contribute towards closing the recessionary gap and stabilizing the economy.
Monetary PolicyGermany does not have its own money so they can not use their own monetary policy. Germany has to abide by what the ECB (European Central Bank) says. The ECB is expected to raise interest rates 1.
5% by the end of this year. This rising of interest rates will not effect only Germany, but all the rest of the countries that are involved in the ECB. This can result in unstable prices, and alter many costs of living making it harder for citizens to get approved for loans on many things. It increases the cost of borrowing, increases mortgage income payments, increases incentive to save rather than to spend, rising interest rates affect both consumers and firms, and government debt interest payments increase.FDIGermany is considered an attractive country for foreign direct investment (FDI), but the global recession and subsequent Eurozone crisis in 2012 have hampered the influx of FDI in recent years. After reaching USD 33.3 billion in 2015, FDI inflows dropped to USD 9.5 billion in 2016, the second lowest level since 2009.
In terms of FDI stock, Germany is now the 10th destination for foreign investment (8th in 2015) after being outranked by Ireland and the Netherlands. In fact, German FDI stock has been melting away since 2012, dropping from USD 1.08 trillion to USD 771 billion in 2016. Among the country’s strengths are a highly powerful industrial network, a highly skilled workforce with a good command of English, reliable infrastructure, a favourable social climate, a stable legal framework and a location in the heart of Europe. Its main weakness is a high tax rate (for both individuals and businesses) and rather inflexible labour laws.