Key Messages on the German Economy

German Economy Today

1. In its annual projection for 2012, the German government forecast GDP to grow this year at a real rate of 0.7 percent. In 2011, the German economy showed a high level of growth: After an acute economic slump following the financial crisis, GDP grew by 3.0 percent. It is above all attributable to the rebound in the global economy. Initial economic stimulus from exports has now spread to domestic demand. Domestic demand is now becoming the driving force behind Germany’s economic expansion.

2. Real household disposable income is projected to increase in 2012 by 3.0 percent. In 2011 real household disposable income rose at a faster pace than at any time since 2001, namely by 3.3 percent. The main factors contributing to this increase include positive developments on the labor market and moderate trends in price levels, together with government tax relief measures.

3. These developments are boosting recovery of the domestic economy. Consumer spending increased in 2011 by a solid 1.6 percent, the highest increase since 2006.

Enlarge image Unemployment among the youth of today in Germany took an especially precipitous tumble, a full 1.3 percent lower than the national average. (© picture alliance / dpa) 4. The economic rebound has also resulted in an upswing in employment. The annual unemployment rate fell from 7.7 percent in 2010 to 7.1 percent in 2011. For 2012, unemployment is expected to fall further to 6.8 percent.

5. Another significant factor in Germany’s success in preventing a dramatic increase in unemployment during the economic and financial crisis was the government-subsidized shortened work week (“Kurzarbeit”). The economic crisis, during which it was implemented, highlighted its benefits dramatically. The program helped employers in Germany tremendously in keeping their experienced and qualified workforce relatively stable throughout the crisis. Once the recovery took hold, they were and are now in a much better position to meet rising demand.

6. The economic recovery continues to face challenges: The German economy is very open and tightly integrated into the global economy. Global economic developments therefore have a major impact on the German economy.

Enlarge image Consolidation of public finances (© picture-alliance/dpa)

7. Germany is implementing the necessary growth-oriented consolidation of public finances. This will involve limiting government spending, reducing subsidies, enhancing incentives, and placing a continued priority on funding for education and research. The package aims to achieve structural consolidation that strengthens growth potential and enhances confidence in the stability of the euro.

8. The last two years have highlighted the need for close international cooperation in economic and financial policies. Only through joint action, namely within the G20, will the world manage to retreat from the brink of a total and global economic and financial meltdown. The recovery was achieved by internationally coordinated monetary and fiscal policy measures whose chief objective was to stabilize financial markets and stimulate economies while avoiding protectionist tendencies.

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German Economy Basics

1. The German economy is the fourth largest economy in the world by nominal GDP and Europe’s largest economy. Germany is the world’s third largest exporter after China and the United States, with 1.06 trillion euros (ca. $1.3 trillion) in goods exported in 2011. GDP in 2011 was $3.6 trillion and around $40,000 per capita.

2. Enlarge image Wind energy addresses climate change, boosts energy independence and is an intelligent investment. (© Colourbox) Germany is among the world’s largest and most technologically advanced producers of machinery, vehicles, chemical products, pharmaceuticals, and electronics. Germany is furthermore the leading producer of wind turbines and solar power technology.

3. In 2011, the 10 largest German companies listed on stock exchanges measured by revenue were Volkswagen, Allianz, E.ON, Daimler, Siemens, Metro, Deutsche Telekom, Munich Re, BASF, and BMW. Other well-known global brands are Mercedes Benz, Adidas, Puma, Porsche, DHL, T-Mobile, Lufthansa, SAP, Nivea, Hugo Boss, Bayer, and many others.

4. Germany's drivers of economic growth are widely spread across the country: Only three of Germany’s 100 largest companies are headquartered in the capital Berlin. Germany’s financial center, for example, is Frankfurt am Main, where the most important stock exchange is located. In addition to traditional economic regions, new clusters have evolved in eastern Germany in recent years.

5. Germany is relatively scarce in raw materials. Only coal and potash salt are available in significant quantities. Oil, natural gas, and other resources have to be imported from other countries.

Enlarge image The skyline of Frankfurt am Main, Germany's financial center (© picture-alliance/ dpa) 6. Roughly 3.7 million small and medium-sized enterprises (SMEs) and self-employed professionals form the heart of Germany’s social market economy and serve as the key engine of growth and employment. They represent 99.7 percent of all businesses and produce 38 percent of taxable revenues. SMEs are defined as businesses with annual revenues of less than 50 million euros and with fewer than 500 employees.

7. Since the mid-20th century, Germany’s economic policy has been based on the concept of the social market economy (“soziale Marktwirtschaft”). The central idea of the social market economy is to protect the freedom of all market participants, while simultaneously ensuring social equity. This means providing an effective level of social security for people unable to earn market incomes due to age, disease, or unemployment, without constraining market freedom.

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