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Economy of Germany

Economy of Germany
Currency 1 euro = 100 eurocent
Fiscal year Calendar year
Trade organisations EU, WTO and OECD
Statistics [1]
GDP ranking 5th (2004) [2]
GDP $2,271bn (2004)
GDP growth 1.6% (2004)
GDP per capita $27,600 (2004)
GDP by sector agriculture (1%), industry (31%), services (68%) (2002)
Inflation 1.1% (2004)
Pop below poverty line N/A
Labour force 42.63m (2004)
Labour force by occupation services (63.8%), industry (33.4%), agriculture (2.8%) (2002)
Unemployment 10.5% (2004)
Main industries iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, textiles
Trading partners [3]
Exports $696.9bn (2004)
Main partners France 10.6%, US 9.3%, UK 8.4%, Italy 7.4%, Netherlands 6.2%, Austria 5.3%, Belgium 5.1%, Spain 4.9%, Switzerland 4% (2003)
Imports $585bn (2003)
Main partners France 9.2%, Netherlands 8.4%, US 7.3%, Italy 6.3%, UK 6%, Belgium 4.9%, China 4.7%, Austria 4% (2003)
Public finances [4]
Public debt $1,417bn (62.4% of GDP)
Revenues $1,079bn (2004)
Expenses $1,173bn (2004)
Economic aid $5.6bn (1998)
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Germany is the world's third largest economy and the largest in Europe. Recent performance has not been dynamic, however, and the German economy is marked by vulnerability to external shocks, domestic structural problems, and continued difficulties in integrating the formerly communist East.

From the 1948 currency reform until the early 1970s, West Germany experienced almost continuous economic expansion, but real GDP growth slowed and even declined from the mid-1970s through the recession of the early 1980s. The economy then experienced eight consecutive years of growth that ended with a downturn beginning in late 1992. Since reunification in 1990, Germany has seen annual average real growth of only about 1.5% and stubbornly high unemployment. The best performance since reunification was registered in 2000, when real growth reached 3.0%. Most forecasters expected growth of about 1.5% in 2001 while unemployment remains above 9%. The real growth was about 0.6% in 2001 and 2002. In 2003, Germany experienced a negative GDP growth about -0.1%. The expected growth in 2004 and 2005 is about 1%.

Germans often describe their economic system as a "social market economy" (Soziale Marktwirtschaft). The German Government provides an extensive array of social services. Although the state intervenes in the economy through the provision of subsidies to selected sectors and the ownership of some segments of the economy, competition and free enterprise are promoted as a matter of government policy. The government has restructured the railroad system on a corporate basis and is privatizing the national airline, telecommunications, and postal service.

The German economy is heavily export-oriented, with exports accounting for more than one-third of national output. As a result, exports traditionally have been a key element in German macroeconomic expansion. Germany is a strong advocate of closer European economic integration, and its economic and commercial policies are increasingly determined by agreements among European Union (EU) members. Germany uses the common European currency, the Euro, and its monetary policy is set by the European Central Bank.

Despite this external vulnerability, most foreign and German experts consider domestic structural problems to be the main cause of recent sluggish performance. An inflexible labour market is the main cause of persistently high unemployment. Heavy bureaucratic regulations burden many businesses and the process of starting new businesses. German employers, even during periods of relatively fast growth, say they often prefer to invest overseas or install more machinery, rather than make job-creating investments at their domestic facilities.

Ten years after the unification of the two German states, great progress has been made in raising the standard of living in eastern Germany, introducing a market economy and improving infrastructure there. At the same time, the process of convergence between East and West is taking longer than originally expected and, on some measures, has stagnated since the mid-1990s. Eastern economic growth rates have been slower than in the West in recent years, unemployment is twice as high, prompting many skilled easterners to seek work in the West, and productivity continues to lag. Eastern consumption levels are dependent on public net financial transfers from West to East totalling about $65 billion per year, or over 4% of the GDP of western Germany. The German news magazine "Der Spiegel" estimates the total reunification costs at €1.25 trillion. In addition to social assistance payments, the government plans to extend funds to promote eastern economic development through 2019.

The United States is Germany's second-largest trading partner, and U.S.-German trade has continued to grow strongly. Two-way trade in goods and services totalled $88 billion in 2000. U.S. exports to Germany were $29.2 billion while U.S. imports from Germany were twice as high, $58.7 billion. At $29.5 billion, the U.S. trade deficit with Germany is the United States' fourth-largest, after China, Japan, and Canada. Major U.S. export categories include aircraft, electrical equipment, telecommunications equipment, data processing equipment, and motor vehicles and parts. German export sales are concentrated in motor vehicles, machinery, chemicals, and heavy electrical equipment. Much bilateral trade is intra-industry or intra-firm.

In Germany, prostitution is legal and rather widespread. The legal status of prostitutes has been improved in 2002, when a law clarified that their occupation does not "offend good morals". Trafficking in women from Eastern Europe remains a major problem. See the article on prostitution in Germany for details.

Germany follows a liberal policy toward foreign investment. From 1995 to 1999, annual average flows of U.S. direct investment in Germany were $3.4 billion, while those of German investors in the United States reached $21 billion. Americans accounted for 18% of all foreign direct investment in Germany during 1998–99, the third-largest source after France and the UK. In terms of cumulative position (historical cost basis), German investment in the United States was valued at $111 billion in 1999, having more than doubled since 1995, while U.S. investment in Germany was worth just under $50 billion, having grown just 12% since 1995.

Despite persistence of structural rigidities in the labour market and extensive government regulation, the economy remains strong and internationally competitive. Although production costs are very high, Germany is still an export powerhouse. Additionally, Germany is strategically placed to take advantage of the rapidly growing central European countries. The current government has addressed some of the country's structural problems, with important tax, social security, and financial-sector reforms. In the future, Germany faces further fundamental economic adjustments to boost growth and job creation.

Other statistics

Investment (gross fixed): 17.6% of GDP (2004)

Household income or consumption by percentage share:

  • lowest 10%: 3.6%
  • highest 10%: 25.1% (1997)

Distribution of family income – Gini index: 30 (1994)

Agriculture – products: potatoes, wheat, barley, sugar beets, fruit, cabbages; cattle, pigs, poultry

Industrial production growth rate: 2.2% (2004 est.)

Electricity:

  • production: 560 TWh (2003)
  • consumption: 519.5 TWh (2003)
  • exports: 53.8 TWh (2003)
  • imports: 45.8 TWh (2003)

Electricity – production by source:

  • fossil fuel: 61.8%
  • hydro: 4.2%
  • other: 4.1% (2001)
  • nuclear: 29.9%

Oil:

  • production: 74,100 bbl/day (2003)
  • consumption: 2.891 million bbl/day (2003)
  • exports: 12,990 bbl/day (2003)
  • imports: 2.135 million bbl/day (2003)
  • proved reserves: 395.8 million bbl (1 January 2004)

Natural gas:

  • production: 21 billion cu m (2003)
  • consumption: 99.55 billion cu m (2003)
  • exports: 7.731 billion cu m (2003)
  • imports: 85.02 billion cu m (2003)
  • proved reserves: 293 billion cu m (1 January 2004)

Current account balance: $73.59 billion (2004 est.)


Exports – commodities: machinery, vehicles, chemicals, metals and manufactures, foodstuffs, textiles

Imports – commodities: machinery, vehicles, chemicals, foodstuffs, textiles, metals

Reserves of foreign exchange & gold: $96.84 billion (2003)

Debt – external: NA

Economic aid – donor: ODA, $5.6 billion (1998)

Exchange rates:

  • Euro:
January 2005: 0.77 USD = 1 EUR
January 2000: 0.99 USD = 1 EUR
1999: 0.94 USD = 1 EUR
  • Deutsche Mark:
January 1999 1.69 USD = 1 DEM
1998 1.76 USD = 1 DEM
1997 1.73 USD = 1 DEM
1996 1.50 USD = 1 DEM
1995 1.43 USD = 1 DEM

See also




World Trade Organization (WTO)
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