Discuss about the Report for Economics of Germanies Economy.
Germany’s economy has shown commanding resilience in the face of global economic headwinds. Through the identification of the financial position of the country, German Government and Central Bank of the country have delivered on-time reforms to promote strong public funding and deficit-cutting effort controlling the public spending to a certain extent (Funke & Niebuhr, 2015). The regulatory efficiency of the German government has created open-market policies to support the property rights of the investors (Blum & Dennis, 2009). On the other hand, unique labour market reforms such as flexibility in the working hours and compact structural unemployment have contributed to the sustainability of the job market. The industrialised economy of Germany has been one of the strongest points of the country’s growth. Though the growth of the country has slowed, the policies of the government have managed to keep the unemployment rate down (Fuller & Vossmeyer, 2014). Notably, due to economic and political strengths, Germany has been one of the most influential countries in the European Union.
In order to identify the production output performance of Germany, three of the economic indicators such as Real GDP data, Real GDP growth rate and Real GDP per capita data have been taken into consideration to deliver a clear evidence of the current economic status. According to the reports, the Real GDP in 2014 has been recorded as $3868.29 billion (€2920 billion) and in 2015 the revised data came to $3355.77 billion (€3023 billion). On the other side, the Real GDP growth rate of the country was recorded as 1.6% year on tear basis in 2014 whereas in 2015; the growth rate has been measured 1.7%. Another impressive statistics is the Real GDP per capita data (“Germany”, 2016). In 2014, the data were recorded as $44755 whereas in 2015, the revised data showed the Real GDP per capita to be $45269. Through the understanding of the economic indicators, a detailed analysis of the economic performance has been produced in the underlying section.
The gross domestic product has been the backbone of any country’s economic strengths. In figure 1, a graph chart has been shown to analyse the Real GDP of the country in the past decade. Notably, robust expansion of the economy has been seen in 2013 and 2014 as the domestic economy of the country has exceeded the external sectors. As a result of the same, the Real GDP in 2014 and 2013 has been recorded as the highest in the past decade. Due to the strong fixed investment growth, Europe’s largest economy has retained its past economic glory as sustainable growth can be identified in the private consumption sector (Moulton, 2009). Currently, the GDP value of the country has represented the 5.41% of the global economy (“Germany”, 2016). As reported by the World Bank Group, in 2014 the German Economy has seen the Real GDP at all time high showing the revival of the economy.
Figure: Real GDP data
Source: (“Germany | Economic Indicators”, 2016)
The analysis of the German GDP growth rate can helpful to identify the acceleration of the economy matching the preliminary estimates. Driven by the robust investment opportunities amd household spending growth, the Gerpan economy has grown by 1.6% in 2014 and 1.7% in 2015. On year-on-year basis, the largest economy of Europe has been grown by 0.32 percent on an avarage since 1991. As shown in the figure 2, in the second quarter of 2010, the Real GDP growth was recorded as 2 percent which is the highest whereas the low point of the economy has been market in Q1 of 2009 (GDP Growth rate -4.5%) (“Germany Economic Outlook”, 2016).
Figure: Real GDP growth rate
Source: (“Germany | Economic Indicators”, 2016)
The Gross Domestic Product per capita of the country is equivalent to 358 percent of the average of the global GDP per capita. Since 1970, Germany’s GDP per capita has been recorded as $32801 on an average. According to the World Bank, the all time high of the GDP per capita data has been achieved during 2015 where the data has shown $45269 GDP per capita (“Germany Economic Outlook”, 2016).
Figure: Real GDP Per Capita
Source: (“Germany | Economic Indicators”, 2016)
In order to identify the current performance trends of the economy, investment data, retail sales, industrial production, and import and export data of the economy can show the performance providing evidence. The Business Climate index of the economy has shown some uncertainty that is spurring uneasiness among the investors (Husain, 2007). The retail sales data in 2015 has presented a powerful message to the economy showing 3% growth in compare to 2013 and 2014. On the other side of the scenario, the industrial production has slipped down from 1.5% in 2014 to 0.5% in 2015 showing the contraction of the industry sector (“Germany”, 2016). The deterioration of industrial production has been a worry for the market investors and operators. The current market moves and lack of industrial acceleration have softened the sentiment of the investors as the annual variation of investment data has dropped down from 3.5% in 2014 to 2.2% in 2015 (“Germany Economic Outlook”, 2016). The export data has been recorded the highest since 2011 to 5.4% whereas the import data is recorded as 5.8% in 2015 showing the economic activities in import and export.
The economic policy and measures of the German government have been criticised to a certain extent. Though the GDP data is not high enough, the employment policy of the government has controlled the rate of unemployment to improve the job sector. In order to revive the industrial production, the government has positioned specified FDI policies to strengthen the position of the private sector (Blashfield, 2013). By promoting higher education, professional skill enhancement projects and competitiveness in the industrial sector, the government has shown the way to the future (Anttila, 2008). Modern science and technological assistance have been highly encouraged so that latest infrastructure can be delivered to the private and public sector for better productivity. Along with that, the Federal Budget has been considered to provide a sustainable economic performance encouraging industrial productivity at the highest point. Meanwhile, the economic policies of EU and current global market scenario have hindered the progress of the German economy to a certain extent (Maxim, Paulsell, & Gramberg, 2015).
Analysing the last ten years unemployment rate figures of Germany, it can be seen that the government and business industry of the nation has worked hard to increase the employment rate in the country (Entorf, 2015). The overall unemployment rate has decreased from 10.57% in the year 2006 to 4.20 percent in the year 2016. A diagram has been presented below for better understanding.
Figure: Unemployment rate (2006 to 2016)
Source: (“Germany | Economic Indicators”, 2016)
Looking at the unemployment rate of Germany from the above figure, it can be seen that the unemployment rate increased in the year 2009 due to the global financial crisis that hit the entire world economy (Dietz & Walwei, 2012). Now, considering the type of unemployment that exists in the German economy, it can be said that the primary type of unemployment is the frictional unemployment. Along with that, Cyclical as well as structural unemployment can be evident in the nation.
Structural unemployment occurs due to lack of knowledge and skills among the new talents and emerging youngsters in the country. It can be seen that the rate of unemployment of young people aged between 18 to 25 years have increased up to 14 percent in the country. This is because, every multinational organisation asks for an experienced person with proper knowledge of the job. There are few jobs available for fresher (Jackson, Geiger, Vanderslice, & Leitner, 2006). On the other hand, cyclical unemployment can be seen in the nation that occurs due to financial downturn in the economy. If we look at the GDP figure of 2009, a tragic fall can be seen in the real GDP of the country. Along with that, the financial status of the nation also impacted the labour market with rise in the unemployment rate. The primary type of unemployment that exists in the German economy is the frictional unemployment. It occurs due to voluntary retirement of one person from the job in search of a new job (Kogan, 2010). Hence, the time spent during the course of finding a new job is considered as frictional unemployment.
It can be seen that the unemployment level in Germany has decreased in the last ten years due to several policies of the government. The government reforms increased flexibility in the labour market and the dwindling supply of skilled workers replaced the retiring individuals. The German government promoted international trade in the country to increase availability of jobs in the labour market. Furthermore, the government supported the need of education of the common people by assisting them to improve their skills and knowledge. Currently, it can be seen that the number of people employed in the healthcare sector have increased by 4.7 percent and trade sector by 2 percent. Hence, the government initiative to improve the labour market has worked well to support the needs of the general public (Flelder, 2015). The major point to be noted is that there is no economy with zero percent unemployment rates because of frictional unemployment. Hence, it is not possible for the German government to reach the level of zero unemployment in the country. But, the new policies and government reforms have worked well in the last ten years to improve the economic condition of the labour market.
The price level is used as an essential tool to analyse the economic position of a country. It helps to understand the economic growth of a country. The price level of a nation is denoted by the CPI rate which is also known as the inflation rate. The inflation rate of Germany has gradually decreased in the last ten years. Currently, it can be seen that the German economy is facing an inflation rate of 0.28 percent which has increased from the previous year 2014 by 0.09 percent. The German government has been always capable of controlling the demand and supply of products in the market that helped the system to stabilise the price level in the country. A figure has been presented below for better understanding.
Figure: Inflation Rate
Source: (“Germany | Economic Indicators”, 2016)
It can be seen from the above figure that the cost price index of Germany has fallen in the year 2009 due to the global financial crisis all across the world. Since 2009, Germany has seen a rise in the inflation rate that has again fallen in the year 2014 and 2015. The first fall in the inflation rate was due to the fall in the global economy. But, the second fall has occurred due to the control of the German government through its monetary and fiscal policies (Heywood & Jirjahn, 2015). There are two causes of inflation that are explained herein below.
Demand Pull Inflation
Demand Pull Inflation occurs due to the increase in demand and fall in supply of products in the market. It can be seen that the global economic crisis has led to increase in the demand and shortfall of supply in the German market from 2010 to 2013. Hence, a rise in the inflation rate can be seen during these years (Caliendo, 2006). The inflation rate was around 2 percent during the year 2011 and 2012. A diagram has been presented below that shows the rise in price due to shift of demand from AD1 to AD2 and limited supply at LRAS.
Figure: Demand Pull Inflation
Source: (Caliendo, 2006)
Cost Push Inflation
Cost pull inflation occurs due to shortage of supply in the market that leads to increase in the price level of the products. There are different factors that lead to rise in the price level such as increase in the wages, price of raw materials, higher taxes, declining productivity and import prices. The cost push inflation is another major reason for the rise in inflation rate in the economy. The government of Germany has appropriately managed the supply of products in the market to control the inflation rate in the country. A diagram has been presented below showing cost pull inflation due to the shift of supply from SRAS 1 to SRAS 2 and the aggregate demand remains constant at AD1.
Figure: Cost Push Inflation
Source: (Caliendo, 2006)
It can be seen that the government of Germany has worked effectively in monitoring and controlling the price level of the country. The fiscal and monetary policy of the implemented by the German government have created equality and maintained the interest and tax rate in the country to control inflation (Eichhorst & Tobsch, 2015). Furthermore, German government promoted export and important of products to improve the economic position and increased its spending to control the price level in the country.
Conclusion
It can be seen from the above analysis that the German government has proved to take necessary economic reforms to improve the economic condition in the nation. A gradual increase can be seen in the real GDP and per capita GDP of the nation. Furthermore, the government has been capable of reducing the unemployment rate from above 10 percent to 4.2 percent in the current year. Finally, the monetary and fiscal policy of the German government has also worked well to maintain a low price level rise in the country. Hence, it can be seen that the government of Germany has effectively monitored and controlled the economic condition since last ten years. Along with that, the government of Germany has effectively maintained the tax rates and interest rates in the market to maintain the flow of money in the economy and improve the financial condition of the people as well as the economy.
References
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Blashfield, J. (2013). Germany. New York: Children’s Press.
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Dietz, M. & Walwei, U. (2012). Erratum to: Germany—No Country for Old Workers?. Journal For Labour Market Research, 45(1), 5-6. https://dx.doi.org/10.1007/s12651-011-0097-z
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Funke, M. & Niebuhr, A. (2015). Threshold effects and regional economic growth—evidence from West Germany. Economic Modelling, 22(1), 61-80. https://dx.doi.org/10.1016/j.econmod.2004.05.001
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