German Economy

Germany has a highly developed social market economy. It has the

largest national economy in Europe, the fourth-largest by nominal GDP
in the world, and fifth by GDP (PPP). Germany is a founding member of
the European Union and the Eurozone. Germany is world's export
champion (until 2009 it was at number one position). Its economy has
been resilient in the face of recent global economic downturn by
making necessary short-term sacrifices for long-term success.Germany
is the largest market in Europe. It constitutes 20 percent of European
GDP, and is home to 17 percent of the total European Union (EU)
population. Stable annual average GDP growth of 1.8 percent the past
five years provides proof of further economic potential. The German
economy is both highly industrialized and diversified; with equal focus
placed on services and production.

Capitalist Economy
The 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

The agricultural
sector amounts to
less than 1% of GDP and employs 1.3% of the German workforce. The
agricultural sector has benefited greatly from state subsidies. The main
agricultural products include milk, pork, livestock, sugar beets and
cereals. German consumers tend to prefer organic agriculture. The
country is going through a deindustrialisation process of the 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 policies

Fiscal Policy

In 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 Policy

Germany 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.

FDI
Germany 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.

Problems