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Germany Economics analysis
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This assignment evlues Germany's GDP, Inflation rate, Interest Rates, Unemployment rates and comparing it to France, italy, U.K and Spain
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Business Economics Group Project 2020EC163
WORD COUNT: 4900
Tutor: Sushil Mohan
Students:
19824671 - Dzosua Arcers
19825735 - Greta Aranyi
19820924 - Katherine Collins
19842196 - Harry Gross
19828305 - Abz Parvaneh
,Contents
Introduction.................................................................................................................................................2
History.........................................................................................................................................................2
Structure of Germany's GDP........................................................................................................................3
Global Financial crisis: Germany's economy down turn..............................................................................3
Eurozone crisis.............................................................................................................................................5
Immigration surge.......................................................................................................................................5
Domestic demand and export growth: 2018...............................................................................................6
GDP per capita.............................................................................................................................................6
Expenditure Components............................................................................................................................7
Consumption...........................................................................................................................................7
Investment...............................................................................................................................................9
Government...........................................................................................................................................10
Net Exports............................................................................................................................................11
CPI Inflation rate of Germany....................................................................................................................12
Main Policy: Interest Rate..........................................................................................................................13
Supply and Demand model in relation with Price stability........................................................................14
Germany Budget Balance..........................................................................................................................20
Balance of Payments:................................................................................................................................23
Conclusion.................................................................................................................................................25
References.................................................................................................................................................26
Bibliography...............................................................................................................................................33
1
,Introduction
Germany, officially known as the Federal Republic of German is a country situated in central
Europe. Germany's population (2019 est.) is 83,086,000 people, making it a sizable country.
Germany is the fourth biggest economy in the world, with $4.44 trillion GDP (Investopedia,
2020). Thanks to it’s location, it is also become the prime logistics hub in the world.
History
Through the 1930’s Germany relied on foreign capital and loans from the USA to survive.
Germany struggled repaying these loans when they were due, and its exports drastically fell.
Banks failed to keep up with aggregate demand which stimulated inflation.
From 1933 the Nazi party aimed to boost the German economy and invested 26 billion marks
into tanks, aircraft and ships (BBC, 2020)..
Germany’s economy suffered from losing another world war. In 1948 The US gave $15 billion
dollars (equivalent to $173 billion in 2020) to European countries as a part of the European
recovery plan. The Franco-German reconciliation also created an authority to control production
of steel and coal to ensure a smooth recovery of the economy (History.com editors, 2018).
In 1989 the Berlin Wall fell, and Germany was unified. Germany’s wealth is in favour of the
west having been very capitalistic and the east being aligned with the Soviet Union.
In 2007-2008, Germany like many other countries suffered from the global financial crisis. It
involved excessive risk in building and purchasing a house, excessive borrowing by banks and
investors, and errors with subprime lending regulations. German workers in car plants were
forced to go on leave for weeks on end. German exports were not only slowing down, but
foreign orders were also plummeting. As the US economy was weakened, the knock-on effects
through the world economy reduced world trade which continued until early 2009.
In 2011-2013, the Euro zone crisis occurred. Greece was bailed out by Germany and France
however Germany required bailouts from the EU and IMF to sustain the single currency.
2
, Structure of Germany's GDP
Germany’s had a strong economic performance for the last ten years, strengthing it’s domestic
demand and good social outcomes. The country’s economy is also highly export centred. In fact,
the share of exports in total output has risen by 20% in 1970 to 50% in 2011. Its economy is
primarily based on industry (excluding construction). Germany's manufacturing industry mostly
consists of cars, machinery and chemical products, which is also their most exported products.
The industry accounts for more than a quarter of its GDP. Besides Germany's industrial centered
economy, services contribute 70% of GDP, following with public services, school and health
which contributes 18% of GDP, and real estate activities which present 12% of its GDP.
Germany is Europe largest economy, making up 21% of Europe’s GDP. Germany is considered
as the stabilizing country in Europe and within the European Union. Between 2010 and 2018, the
real GDP grew within the EU-28 by 1.6 % yearly on average (GTAI, 2019) . During the same
period, the German economy grew by 2.4% which is higher than the UK’s, Italy’s and France’s
observed GDPs. Nonetheless, the German government expects a slower growth of 0.5 % in 2019
because of the uncertainty of the economic environment (GTAI, 2019). Germany's GDP is
mostly consisted of net exports and is higher than the average Eurozone net export. However, it’s
domestic demand is lower compared to other countries in the Eurozone.
Global Financial crisis: Germany's economy down turn
In 2008 Germany’s GDP drastically plummeted from 1% to –5.7%. German banks were
carelessly giving out loans to lenders until they were running out of funds which caused a
shortage of bank spending. Consumers were less confidence in purchasing and started saving
while businesses postponed their investment, all causing aggregate demand to fall.
While the GDP growth is in a downturn, workers in car plants were forced to go on leave for
weeks on end. Lower interest rates and a devalued euro meant that there was little hope for an
expansion phase. German exports were not only slowing down but foreign orders were also
plummeting. As the US economy was weakened, the knock-on effects through the world
economy reduced world trade which continued until early 2009. For Germany this was a severe
problem.
3
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