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Economic Analysis of Germany Case Study

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Updated: Apr 26th, 2019

Major macro-economic indicators 2010 2011 2012 2013(f)
GDP Growth (%) 3.6% 2.7% 3.1% 0.9%
Inflation (Yearly average) (%) 1.1% 2.2% 1.99% 1.3%
Budget balance (% of GDP) 4.2% 0.8% 0.2% 0.4%
Current account balance (% of GDP) 6.11% 5.63% 5.65% 5.69%
Public debt (% of GDP) 83.4% 81.5% 83% 81%

Strengths

Germany is characterized by a thriving export industry, strict discipline on fiscal matters and industrial relations and welfare policies which are driven by consensus among all parties. The country is specifically associated with goods of high quality and goods that are high-tech. It also practices a social market economy which is characterized by a combination of free enterprise and competition that concentrates on high level of social services.

Germany’s economy is ranked third largest in the world in terms of market exchange rates and fifth largest one in terms of purchasing power parity. There is social understanding and cohesion among employers and employees, and the workers’ union representatives negotiate with executives of corporate companies in boardrooms. This system is referred to as co-determination.

Germany is also credited with having the largest coal deposits among the European Union countries, estimated at 7.4 billion short tons. This state has also put in place a highly developed transport and communications network which helps in transportation of goods and services (Merikas & Merika, 446).

Weaknesses

Germany as a country does not have a lot of natural resources and therefore relies on importing them from other countries to fuel its manufacturing industry. A large percentage of the country’s population is ageing and this has put a lot of pressure on the country’s high welfare and spending on universal health provision.

Unfavorable geological conditions make the mining of hard coal economically unviable. The country’s economy is over regulated in an attempt to protect the locals from international competition and the government has been accused of strong resistance to change (Merikas & MErika, 447).

Risk assessment

The country is categorized as a CRT-1 country which has very low risk levels in all the three risk categories i.e. political risks, economic risks and financial system risks. In 2009, the country’s economy went under recession and recorded a sharp decrease of 5% in real GDP. After the recession, the country was able to recover but has been on a downward trend and growth has slowed down to 0.6% in the year 2012. This is caused by weak global demand for exports and the risks and uncertainties brought about by the Euro zone debt crisis (Ewing, par 10).

Efforts to stem high unemployment and low average economic growth

During the period beginning1998 to 2005, the government of Germany, under the leadership of Chancellor Gerhard Schroeder, came up with various reforms to try and control the increasing unemployment in the country and to put some energy into economic growth recovery. These reforms led to strong growth in the economy which was recorded in the years 2006 and 2007 and the falling unemployment rate during the same years.

In 2008 and 2009, the government of Germany under the leadership of the then Chancellor, Angela Merkel came up with a stimulation programs and stabilization strategies to further rescue the failing economy. These efforts resulted in an increase of budget deficit in 2010 to a level of 3.3%. To control the budget deficit, the government introduced high tax revenues and reduced the overall expenditure.

This lowered the deficit to 1.7% in 2011. This rate was below the 3% limit established by the European Community. In an attempt to limit the budget deficit, the government passed an amendment to the constitution in 2009 which was aimed at ensuring that the deficit would not go beyond 0.35% of GDP by the year 2016 (Ewing, par 7).

Works Cited

Ewing, Jack. “In Germany, a Limp Domestic Economy Stifled by Regulation.” The New York Times. 22 Feb. 2012. Web.

Merikas, Andreas and Anna Merika. “Stock Prices Response to Real Economic Variables: The case of Germany.” Managerial Finance, 32.5 (2006): 446-450. Print.

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