Economic Evaluation of Germany

 

Contents

Summary

Introduction

History

Economic Terms

Economic Analysis of Germany

Comparison of Germany to Other EU States.

Future Recommendations to The German Economy.

Leaders Of German Economy-

Conclusion

GDP composition by end use

  Germany is a country located in the continent of Europe and is a member of Schengen state. Its economy is the 5th largest economy in the world(CIA world  Factbook). In this article, the economy of Germany during both world wars has been analyzed, after the world wars Germany was divided into two nations namely FGR in west and GDR in east among the allies(CIA world factbook), how the hyperinflation occurred in Germany (Germany in 1920s). The economy of Germany is discussed with the key terms of economics like GDP, inflation, exports and imports, the labour force in Germany. The leaders involved in the economy of Germany and future suggestions have been discussed. Finally in the conclusion it can be taken into account that no doubt Germany is doing great and is performing well as depicted in its GDP, also the  incoming population of migrants may help in rise of economy of Germany initially but in future more immigrants can be a threat to German economy. The use of more renewable resources and non dependence on nuclear plants may also help Germany economically as well as in environment.

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  Germany was involved in the two devastating wars of all time that is WW1 and WW2. War is always bad for the economy and its shown further in our collected data from various resources. Apart from the world wars, Germany was divided into two parts by the allies who fought against Germany altogether for victory. The fate of Germany was decided in this way that half of Germany was taken by USSR and the socialist economy was placed in that part whereas West Germany was under the control of allied powers like USA, U.K France and was under a capitalist economy. After the wall fell in 1989 and Germany was reunified, its economy suffered a big crisis at once only to be recovered in a few years. Now it is the 5th largest economy in the world and is leading exporter of vehicles, machinery, household equipment etc. (CIA Factbook)

 Germany was involved in 2 world wars, after the WW1 Germany was suffering from economic crisis. Castillo(2003) mentioned that there was hyperinflation in Germany, social spending of government increased from 20.5 marks per resident in 1913 to 65 marks in 1929, In 1919 Germany signed the treaty of Versailles with the allied countries who forced it to sign to pay the reparations (6.6 billion GDP) and Germany had to lose its land of about 12 %(Germany in 1920s).He further mentioned the French occupation of Ruhr (due to failed payments) led to economic crisis. After that Adolf Hitler came to power and in 1939 WW2 started when Germany invaded Poland and finally in 1941 it invaded the USSR where the real war started. In 1945 Germany was defeated and once again its economy suffered a huge loss. In 1948 economic wonder occurred followed by Marshall plan in 1949(Britannica). In 1961 Germany was divided into east and west part with a long stretch of border. East was under Soviet control, so it was having socialist economy and west was having a capitalist economy. As cited in the article named, Modern Economic History of East and West Berlin, West was doing great due to its economy and help from allied countries whereas east economy was suffered due to its socialist agenda although it had the best labor force population. East Germany workers had job security, the unemployment rate was less, but had lower wages. From 1951 to 1961 west Germany GNP rose by 8%(Britannica).East Germany had the best infrastructure and people were more skilled genetically and their standard of living was high as compared to other countries. But east had a command economy, everything was owned by the government, there was no liberalization as compared to the west. Finally, when the wall fell in 1989 and Germany reunified it suffered economic crisis due to unifying costs. The economy grew rapidly post-reunification but slumped in a span of 1 year. As per indicators in given in federal statistical office, the annual growth rate of GDP was just 1.4% due to rigid policies of Labor, high taxes that were imposed on eastern part by the west. Unemployment rose due to loss of jobs. East was technologically backward and had low productivity.

  Agriculture contributes about 0.5 % (products- potatoes, wheat, barley, sugar beets, fruit, cabbages, milk products) Industry is 30.7 % whereas Services is 68.6 %. German industries include Iron, steel, coal, cement, chemicals, machinery, vehicles, electronics, textiles, food and beverages, its industrial production growth rate – 3.3 % whereas labour force is 45.9 million.

 Overall, real GDP is expected to increase by1.7% this year, 1.8% in 2019 and 1.7% in 2020.(see Appendix D) Germany ranked as the 3rd largest country in export as well as imports in 2017. According to data retrieved from CIA Factbook, Germany exported $1.25 trillion and imported $973 billion which resulted in the positive trade balance of $280 billion. Top exports of Germany are cars, pharmacy industry, planes and helicopters, whereas it imports are: vehicle manufacturing parts, and electronics. Mainly exports to countries likeUSA, France, U.K, the Netherlands whereas import from China, Netherlands, France, us and Russia.

   As per data, about 73 % population is employed in agriculture area whereas industry comprises of 24.2% of the total population, unemployment rate in Germany as of September 2018 was 3.3% in which from total population employed was 45 MN and unemployed is 1.43 million(Destatis). The employment rate is increasing in Germany which was 1.4% in 2017 as compared to 1.3% in 2016. Due to the rise in pay in Labor as well as more flexible working hours lead to a rise in this employment rate. Highest immigration of 2015 also led to increase in employment due to more skilled workers with better language skills in immigration which accounted for 69% in 2014(Britannica). The inflation rate in Germany is 2.5% in October 2018 which was 2.3 % in August(Appendix C) because of prices of energy and services rose very fast. Inflation in energy rose due to an increasing in heating, electricity and motor fuels whereas in services due to recreation and sporting activities, maintenance and repair of vehicles. Consumers had to pay fewer amounts for primary education, air tickets, and it services (OECD data).

  Economic growth of Germany will remain solid due to the high strong private consumption and expansionary fiscal policy. Construction constraints and Labor shortages will constrain production, especially in the construction sector, increasing wage and price inflation. On the other side migration of immigrants into Labormarket improves education and training and allows companies to expand the market. Fiscal policies also aimed to improve productivity, growth and expansion government planned to invest 3.9 billion Euros per year for infrastructure, education and housing and fund of 2.4 billion for digital infrastructure and high-speed broadband in schools.

  The consumption expenditure in Germany was higher than other EU member states of EU in 2017. The bordering countries to Germany namely Poland and the Czech Republic had a lower cost of living in a previous year whereas within EU Denmark, Luxembourg, and Sweden. As shown in the site of Dictates, the national minimum wage of other EU countries was static whereas Germany had a minimum wage of 8.50 euro per hr. introduced in Jan 2015 increased to 8.84 euros per hr. in 2017(see Appendix B).

 Recommendations includes: to inspire people for working for long years instead of retiring early. Furthermore, companies should increase their startups to encourage productivity growth and also government should invest in infrastructure.

 Gerhard Schroder- Schroder was the Chancellor of Germany from 1998 to 2005. Schroder’s reform policies helped Germany economy during his administration as follows-

 Labor market reform, social insurance reform, tax system reforms, phasing out nuclear energy(Gerhard Schroder).

 Adolf Hitler– The leader of Nazi Germany and the Third Reich from 1933 to 1945. During his rule, Germany grew as a strong country. The speeches given by him had a great impact on the lives of people. His popularity was over 99% in 1939. He improved the employment and living standards. He did public works like building hospitals, schools etc. through which many people got employment. Many industries like iron, steel, and oil were built for the rearmament which was responsible for economic growth, tanks, aircraft,and ships were made. Germany claimed to have full employment at that time (BBC).

 Germany is doing great to increase its GDP and Germany has high innovation rate and skilled labor, price stability and low inflation. But, Germany has to create more renewable sources because the crisis of natural resources is occurring and it reduces dependence on the external market (Brookings).

References

Britannica,“Economy of Germany”n.d, Retrieved from https://www.britannica.com/place/Germany/Economy

Castillo, D. (2003). German Economy in the 1920s, Retrieved from http://www.history.ucsb.edu/faculty/marcuse/classes/33d/projects/1920s/Econ20s.htm?fbclid

“Employment”  Statistisches Bundesamt (Destatis), 2018 Retrieved from  https://www.destatis.de/Europa/EN/Country/Comparison/GER_EU_Compared.html

“German Country Growth vs World Growth vs GDP growth” World Integrated Trade Solution, n.d Retrieved from https://wits.worldbank.org/CountryProfile/en/DEU

“Nazi economic, the social and racial policy” Bitesize, Retrieved from https://www.bbc.com/bitesize/guides/zw6s7p3/revision/1?fbclid=IwAR2OhwRAH0ih030EVS5GiZG1VAm101kxo1cgi4Rhn7Oj5udoNhQcEhpFNB4

“Publications from Library”. Publications ,The World Factbook, n.d Retrieved from https://www.cia.gov/library/publications/resources/the-world-factbook/geos/gm.html

“World Bank Indicators” Preview, 2018 The World Bank Group http://databank.worldbank.org/data/reports.aspx?source=2&series=NY.GDP.MKTP.KD.ZG&country=&fbclid=IwAR3dujKp64LCI7ZS_hgCCJ3n-Lx9dJHcAcXKYH-BxuOlqe-rvH6LSSl2SNc

APPENDICES

Appendix A

Concept Map

Appendix B

Comparison of German Economy with other EU member states

Country

GDP

(Bn Eur)

GDP

 Growth

 rate

Inflation

 rate

Germany

3277

2.2

1.7

France

2292

2.2

1.2

Belgium

439

1.7

2.2

Austria

370

2.6

2.2

Denmark

293

2.3

1.1

Data were taken from economy and finance section under EU comparison 2018: Germany and other member states.

https://www.destatis.de/Europa/EN/Country/Comparison/GER_EU_Compared.html

Appendix C

GDP of Germany in the last few years  

Year

2012

2013

2014

2015

2016

2017

Germany

0.5

0.5

1.19

1.7

1.19

2.2

Data is taken from World Development Indicators,“World Bank Indicators” Preview, 2018 The  World Bank Group               http://databank.worldbank.org/data/reports.aspx?source=2&series=NY.GDP.MKTP.KD.              ZG&country=&fbclid=IwAR3dujKp64LCI7ZS_hgCCJ3n-Lx9dJHcAcXKYH-BxuOlqe-              rvH6LSSl2SNc

Appendix D

GDP composition by end use

Household consumption 53.1 %

Government consumption 19.5 %

Investment in fixed capital 20.4 %

Exports of goods and services 47.3 %

Imports of goods and services – 39.7%

Agriculture 74.3 %

Industry 24.2 %

 Services 74.3 %

Unemployment rate 3.8 % (2017)

Inflation rate 1.7 %