The Economy of Germany

Introduction

The economy of Germany has emerged gradually from the impacts of the financial crisis experienced in the world from 2007-2008. Within the past decade, Germany has remained an influential player in the economic and political affairs of the European Union (EU). The government of Germany safeguards the rights of its citizens, thereby fostering long-term entrepreneurial development and competitiveness. The nation has sound regulatory processes that support the changing needs of different investors. These attributes have sustained economic performance and growth in the country over the years. This research paper gives a detailed analysis of the country’s economy.

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Thesis statement: With Germany having a stable economy characterized by effective policies that promote international trade, property rights, and effective regulatory frameworks, powerful interventions will be needed to deal with threats such as terrorism, reduced birthrate, and the changes experienced in the European Union.

Research Findings: The Economy of Germany

Germany boasts of a social market economy that has been growing positively. Its national economy happens to one of the largest in the world (Kritikos, 2014). In 2016, the nation contributed over 27 percent to the EU’s economy (Lutz et al., 2017). Germany is a global leader in trade. In 2016, the nation recorded a trade surplus of over 310 US billion dollars. These statistics make Germany one of the biggest exporters in the world. Its Gross Domestic Product (GDP) stands at 3.4 trillion US dollars (Lutz et al., 2017). With a GDP growth rate of 0.6 percent, the country is on the right path towards realizing its potential.

Economic Outlook

The major economic indicators reveal that Germany is a developed nation that supports its citizens’ welfare. To begin with, the country’s population was around 82.7 million in 2016 (Lutz et al., 2017). The population plays a significant role in promoting economic development. The nation’s GDP is 3.8 trillion US dollars. The GDP per capita is 46,893 US dollars. These indicators show clearly that the economy of Germany is performing positively. Within the past five years, the average economic growth rate is 1.6 percent (see Fig. 1). The lowest growth rate was recorded in 2009 (see Fig. 1) when the world was facing a financial crisis.

Germany’s GDP from 2005-2016.
Fig 1: Graph showing Germany’s GDP from 2005-2016 (Lutz et al., 2017).

Economists indicate that Germany is affected by the problem of unemployment. Around 6.1 percent of the citizens do not have jobs. Inflation remains extremely low in this nation at 0.1 percent. This indicator reveals that the economy has been stable over the past 10 years. The country recorded a foreign direct investment (FDI) inflow of 31.7 billion dollars in 2016. Public debt is around 68 percent of the national GDP. Economic experts predict that the country’s GDP will grow at 1.8 percent in 2018 due to the increasing levels of investment and business growth (Lutz et al., 2017).

Driving Factors and Sectors

The stability of any economy is founded on a number of key factors. The above outlook reveals that Germany has specific attributes and sectors that support its economic goals. The first issue is the nature of political climate. Angela Merkel, the country’s Chancellor, promotes an effective open-door model to sustain economic growth (Dustmann et al., 2014). The nation’s political stability creates a desirable environment for business performance and development. The rule law is applied without any form of discrimination (Lutz et al., 2017). Foreign and local entrepreneurs have their property safeguarded under the law. The nation promotes the independence of the judiciary. Consequently, corruption has reduced significantly in both the private and public sectors.

Germany’s regulatory framework fosters entrepreneurial operations and activities. For instance, there is a statutory minimum wage that has been in place since 2015 (Lutz et al., 2017). The government has instituted apposite frameworks to minimize barriers to trade and foreign investment. Germany’s financial sector is known to offer superior services to more people. The banking system is characterized by a three-tiered model. The structure brings together public, private, and cooperative banks.

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The manufacturing sector delivers machineries, vehicles, pharmaceuticals, food products, plastics, electronics, and chemicals to different consumers (Gregory and Stuart, 2014). The power of research and development (R&D) has driven the manufacturing sector. Companies liaise with universities and colleges to produce superior insights that can result in high-quality products. The reduced barriers to international trade make Germany a leading exporter and contributor to the EU’s economy.

The availability of natural resources is a driving force towards economic development. For instance, the nation has numerous resources such as natural gas, salt, forests, copper, potash, and uranium (Simonazzi et al., 2013). These natural assets are used to produce various products that promote economic development. At the heart of Germany’s economy is an effective infrastructure that sustains a wide range of economy activities. The country’s strategic location in Europe makes it an important trade destination. This role is supported using modern railways and road networks that connect Germany to the continent. There are airports that link the nation to the outside world.

The government’s focus on technological advances and sciences has led to research and development (Gregory and Stuart, 2014). The country has been on the frontline to use new technologies to produce energy and manufacture premium products that resonate with the changing needs of more people across the world. Companies such as Mercedes Benz and Volkswagen have managed to capitalize on this driving force.

Different sectors such as agriculture, tourism, mining, and forestry contribute a lot to Germany’s GDP. The agricultural sector delivers products such as sugar beets, wheat, fruits, and potatoes to the EU market (Mody, 2013). The forests in the nation provide timber for producing wood products and furniture. The tourism sector attracts many people from different parts of the world.

Challenges and Issues to Consider

The above discussion has indicated that Germany’s economic growth and prosperity has been catalyzed by a wide range of factors. Unfortunately, there are specific issues that can have disastrous implications on Germany’s future economic prospects. To begin with, Germany’s birthrate has been declining. The current rate is around 1.50 births in every woman (Lutz et al., 2017). This low birthrate will result in reduced labor and eventually affect the nation’s economy.

Terrorism has become a reality in different nations across Europe. Terrorists have the potential to disorient various indicators or drivers of economic development. Countries affected by terrorism will not be in a position to receive tourists, support the needs of their citizens, or promote international trade (Simonazzi et al., 2013). This is a challenge that must be addressed before it gets out of hand.

It is agreeable that many emerging economies such as China, India, Russia, and Japan have what it takes to take Germany’s current position. Such nations are embracing the power of modern technologies to support their respective economies (Mody, 2013). It would, therefore, be appropriate for Germany to implement powerful strategies and processes that can ensure the current rate of economic growth is improved.

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The refugee crisis experienced in different parts of Europe presents a critical issue to Germany. Experts expect that over 1 million refugees from countries such as Yemen and Syria will move to Germany. This means that the country will be compelled to spend over 20 billion US dollars to support the needs of the refugees (Gregory and Stuart, 2014). The existing open-door policy will ensure more legitimate refugees are accommodated in the country. The manner in which Germany manages the issue will impact its economic outlook.

The latest developments experienced in Europe should be monitored carefully by the government to ensure they do not disorient economic performance (Lutz et al., 2017). For example, the United Kingdom’s decision to exit the EU and Catalonia’s landmark referendum for secession might have significant impacts on the region’s economy. It would be necessary for the nation to be prepared against these changes.

Conclusion

Germany embraces a social market economic system supported by effective rule of law, open markets, and appropriate regulatory frameworks. The presence of natural resources, infrastructure, and economic activities has led to increased GDP. Specific sectors such as manufacturing, tourism, agriculture, and mining contribute a lot to the nation’s economy. Despite such economic gains, the government faces numerous challenges such as terrorism, reduced birthrate, Syrian crisis, and secession talks in Spain. These issues should be examined critically to ensure the nation maintains its economic strength.

Works Cited

Dustmann, Christian, et al. “From Sick Man of Europe to Economic Superstar: Germany’s Resurgent Economy,” Journal of Economic Perspectives, vol. 28, no. 1, 2014, pp. 167-188. Web.

Gregory, Paul R, and Robert C. Stuart. The Global Economic and Its Economic Systems. South-Western Cengage Learning: Mason. 2014.

Kritikos, Alexander S. “Entrepreneurs and their Impact on Jobs and Economic Growth,” IZA World of Labor, vol. 8, no. 1, 2014, pp. 1-10. Web.

Lutz, Christian, et al. “Measuring Germany’s Transition to a Green Economy,” Scientific Research, vol. 8, no. 1, 2017, pp. 1-19. Web.

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Mody, Ashoka. Germany in an Interconnected World Economy. International Monetary Fund, Publication Services: Washington DC. 2013.

Simonazzi, Annamaria, et al. “Economic Relations Between Germany and Southern Europe,” Cambridge Journal of Economics, vol. 37, no. 1, 2013, pp. 653-675. Web.

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