Germany: Economy

The German economy--the fifth-largest in the world in purchasing power parity (PPP) terms and Europe's largest--is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force. Like its Western European neighbors, Germany faces significant demographic challenges to sustained long-term growth. Low fertility rates and declining net immigration are increasing pressure on the country's social welfare system and have compelled the government to undertake structural reforms. The modernization and integration of the eastern German economy--where unemployment can exceed 20% in some municipalities--continues to be a costly and long-term process, with total transfers from west to east amounting to roughly $3 trillion so far.

In 2011, gross domestic product grew by 2.7%. The country’s export-dependent economy is growing more quickly than the eurozone average. In 2010, gross domestic product grew by 3.6%, and the German economy experienced its strongest rate of growth since reunification. Domestic demand is becoming a more prominent driver of growth. The German labor market also showed a strong performance in 2010 and 2011, with the unemployment rate dropping to 5.5% in October 2011. Economists attribute the decrease in unemployment to structural reforms implemented under the government of former Chancellor Gerhard Schroeder and to the use of government-sponsored "short-time" (Kurzarbeit) work programs. The German economy so far has been largely unaffected by the sovereign debt crisis in the eurozone, but a recession or slowdown of Europe’s largest economy is expected for the winter half of the 2011-2012 year, mostly due to declining exports to the country’s European partners.

The European Union (EU) gave Germany until 2013 to get its consolidated budget deficit below 3% of GDP, and the government’s 4-year fiscal consolidation program worth approximately €80 billion (U.S. $109.6 billion) is intended to meet deficit targets. Germany’s deficit decreased from 3.3% of GDP in 2010 to 2.0% of GDP (est.) in 2011 thanks to the strong economy and low unemployment.

In May 2011, Chancellor Merkel announced Germany’s plan to phase out nuclear energy power by 2022. It is expected that this policy will further accelerate the growth of the renewable energies sector.

Sources:

CIA World Factbook (March 2012)
U.S. Dept. of State Country Background Notes ( March 2012)

Glossary