Germany - Well Placed in Global Competition
As an economic location, Germany is distinguished by innovative enterprises operating at an international level, a highly qualified, motivated workforce, an education system that functions well by international standards, superb, modern infrastructure and top class research and development capacities. At the same time, thanks to its central geographical situation, Germany is the gateway to the rising new EU markets of Southern and Eastern Europe.
Germany is the classic example of an open economy with intensive economic relations to other countries and ranks as one of the world’s three biggest trading nations behind the USA and China.
These days, industrialized countries like Germany earn the greater part of their gross domestic product (GDP) with services. Most economically active people are employed in service companies. These service providers cover all sectors of the economy and range from one-man cleaning businesses to family-owned department stores and massive IT service corporations. In Germany, service activities of these kinds currently generate almost 70% of GDP. Some way behind follow the manufacturing and construction sectors with 29.9% of GDP, and agriculture with 1.0%.
German service companies occupy front-running positions in international competition, for example in the building industry, maritime shipping, telecommunications, postal/courier and logistics services, technical services and financial services. The most important export goods for the "export world champion" that is Germany include vehicles and vehicle components, machines and chemical products. Globalisation has also brought with it the great hour of the financial investors. The break-up of Deutschland AG ("Germany Inc."), a network of domestic equity providers, banks and industrial concerns that took shape in the post-War period, has drawn financial investors to Germany, especially from the USA and the UK. The number of foreign investors who have found, or are finding, Germany an attractive country with good investment opportunities has markedly increased.
Globalisation has also brought with it the great hour of the financial investors. The break-up of Deutschland AG ("Germany Inc."), a network of domestic equity providers, banks and industrial concerns that took shape in the post-War period, has drawn financial investors to Germany, especially from the USA and the UK. The number of foreign investors who have found, or are finding, Germany an attractive country with good investment opportunities has markedly increased.
Social Market Economy
Since 1947, the economic order of the Federal Republic of Germany has been dominated by the concept of the social market economy. Its fundamental principle is the combination of a free market with elements of social compensation. The social market economy was developed after the Second World War as an alternative to state management of the economy during the reconstruction of the western half of the newly divided Germany. The achievement of pushing through this concept at the political level is associated with the names of Ludwig Erhard and Alfred Müller-Armack. The core idea of the social market economy is that a functioning economic system will not arise of itself, but must be created and cultivated by the state.
Current Economic Development – Leading Export Country
The most powerful engine of the German economy is the export trade. As a result, the Federal Republic of Germany is dependant on the development of the world economy to a considerable extent. In the first six months of 2007, goods with a total value of 115.6 billion euros were exported. There was a particular demand for mechanical engineering and technology products. In the second quarter, economic growth was 2.6%, measured in terms of gross domestic product. In August, inflation lay at 1.9%. Overall, the upswing in the German economy has slowed down somewhat. On the labour market, it is primarily the service sectors that are taking on new staff, although manufacturers are also looking to recruit. In July 2007, 6.4% of the working population was registered unemployed.
Germany’s boom shows no sign of ending and is increasingly being driven by domestic demand. The German Institute for Economic Research in Berlin (DIW) expects the growth in gross domestic product to be 2.5% in 2008 after 2.6% this year. Despite a slight weakening, economic researchers are taking a generally positive view of Germany as an economic location: the expansion of the economy will bring about a clear fall in unemployment from 10.6% in 2006 to 8.8% in 2007 and 7.9% in 2008. Consumer prices should stabilise at an inflation rate of 1.9% in both 2007 and 2008. The public finances will be almost balanced in the current year, and budget surpluses are possible as early as 2008. This cheering news can mainly be attributed to the way tax revenues are flowing more strongly again and the positive development of the labour market.
The goal must be a new social market economy in which social aims are achieved using the methods of the market economy subject to safeguards put in place by state regulation and control. If productivity is to be increased, the welfare state will have to be organised even better and a wholehearted approach taken to cutting the red tape that pervades it. The key challenges for society and politics in Germany over the next 20 years will also include a sustainable reform of the education system and action to exploit the "economic charm of ecology". Environmentally friendly measures will permanently enhance the innovativeness and competitiveness of the German economy.