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German Economy

In the face of a recent world economic crisis, Germany’s economy has improved remarkably. According to purchasing power parity terms, Germany boasts the fifth largest economy in the world, as well as the largest in Europe. Germany is comprised of an advanced, highly skilled labor force, enabling them to be the leading exporter of machinery, vehicles, chemicals, and household equipment. These services have allowed the German economy to significantly outperform the other eurozone economies.

Since the 2008-09 financial recession, reforms to address persistently high unemployment and below average economic growth have contributed to improved growth and falling unemployment. With low unemployment and real wage growth, domestic demand has grown over the last two years. According to an OECD report, financial recovery is expected to progress on the basis of this continued gradual expansion of domestic demand. Monetary policy is expected to remain loose, with interest rates remaining at historic lows, as well as favorable financing conditions, and high levels of investment. This domestic demand-side momentum is expected to increase overall real GDP in 2015.

Stimulus and stabilization efforts in 2008 and 2009, as well as tax cuts introduced during Chancellor Angela Merkel’s second term, increased Germany’s total budget deficit—comprising of federal, state, and municipal—to 4.1% in 2010. However, in 2011, slower spending and higher tax revenues reduced the deficit to 0.8%, and in 2012, Germany achieved a budget surplus of 0.1%. According to the Ifo Economic Forecast of 2014/2015, the German government’s budget surplus should persist, namely due to added revenues from taxes and social contributions as a result of the improving economic situation, and improvements in wages and salaries. Likewise, general government gross debt is expected to fall approximately 70% by the end of 2015.

Works Cited:

  1. “The World Factbook: Germany”. Central Intelligence Agency. Web. 29 Jan. 2015
  2. Ifo Institute for Economic Research. Ifo Economic Forecast 2014/2015: Upturn in German Economy Continues. (Press Release). 26 June 2014.
  3. “OECD Economic Surveys: Germany”. OECD. Web. May 2014. 29 Jan. 2015

One Comment

  1. 1. If Germany is running a budget surplus, then can Greece possibly recover? After all, in an open economy a policy of retrenchment shifts demand towards the domestic side, as it surely cuts imports (what happens to exports depends on incomes elsewhere, given that there can be no depreciation inside the Euro zone). The economies on the Euro Zone periphery are weak. So it’s hard to tell a story of a renewed boom in Spain and Greece, particularly as the initial booms were funded by German banks to construct housing along the Mediterranean coast. They’re not playing that game again. So what will austerity do to (un)employment in Germany?

    2. What happens to Germany with “Grexit”?

    3. In a world awash with savings (and liquidity), why should we worry about government debt, particularly gross debt? (You can go to the OECD for net debt data.)

    4. So is the OECD rose-glasses optimistic?

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