The German economy | The Economist
- 5 years ago
The German economy. Still motoring on
The changing shape of Europe's biggest economy
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Like other developed countries dependent on exports Germany has taken a severe hit from the global downturn in the last couple of years. Yet, compared to its fellow EU member states, Germany, traditionally the economic powerhouse of Europe, has emerged from the recession in relatively good shape. Its budget deficit is growing but still small by EU standards.
While other countries have embarked on massive deficit spending to stimulate their flaccid economies, Germany has been more restrained. Its levels of national debt, at around two-thirds the size of the economy, remained manageable. And perhaps most significantly it has avoided the rapid rise in unemployment experienced in many other countries.
Germany has a strong manufacturing tradition and has run trade surpluses since the middle of the 20th century. The country was thus well placed to benefit when world trade began to boom in the early 2000s. Exports, already a significant proportion of the economy, grew even further.
Germany exports mainly to fellow EU member states. China is taking in a growing proportion of German products and America remains an important trade partner. The proceeds from Germany's growth over the past couple of decades have been unevenly distributed, with wages shrinking as a proportion of the economy. Falling relative wage costs in an era of rising productivity boosted the competitiveness of German exporters. The sluggish growth in German wages helped keep a lid on domestic consumption, resulting in large and growing current account surpluses, which have accounted for much of the country's economic growth in recent years. Few Germans worry about these surpluses but they are the mirror image of current account deficits in countries that can no longer afford them. One example that has been causing much hand-wringing in Germany of late is Greece, which is now being told to become more German to spare rich countries like Germany from having to bail it out. But Germany could help by rebalancing its growth away from exports and towards domestic demand. In other words, perhaps Germany should become a little more Greek
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The changing shape of Europe's biggest economy
Subscribe NOW to The Economist: http://econ.st/1Fsu2Vj
Like other developed countries dependent on exports Germany has taken a severe hit from the global downturn in the last couple of years. Yet, compared to its fellow EU member states, Germany, traditionally the economic powerhouse of Europe, has emerged from the recession in relatively good shape. Its budget deficit is growing but still small by EU standards.
While other countries have embarked on massive deficit spending to stimulate their flaccid economies, Germany has been more restrained. Its levels of national debt, at around two-thirds the size of the economy, remained manageable. And perhaps most significantly it has avoided the rapid rise in unemployment experienced in many other countries.
Germany has a strong manufacturing tradition and has run trade surpluses since the middle of the 20th century. The country was thus well placed to benefit when world trade began to boom in the early 2000s. Exports, already a significant proportion of the economy, grew even further.
Germany exports mainly to fellow EU member states. China is taking in a growing proportion of German products and America remains an important trade partner. The proceeds from Germany's growth over the past couple of decades have been unevenly distributed, with wages shrinking as a proportion of the economy. Falling relative wage costs in an era of rising productivity boosted the competitiveness of German exporters. The sluggish growth in German wages helped keep a lid on domestic consumption, resulting in large and growing current account surpluses, which have accounted for much of the country's economic growth in recent years. Few Germans worry about these surpluses but they are the mirror image of current account deficits in countries that can no longer afford them. One example that has been causing much hand-wringing in Germany of late is Greece, which is now being told to become more German to spare rich countries like Germany from having to bail it out. But Germany could help by rebalancing its growth away from exports and towards domestic demand. In other words, perhaps Germany should become a little more Greek
Get more The Economist
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The Economist videos give authoritative insight and opinion on international news, politics, business, finance, science, technology and the connections between them.