Foreign Trade
Now when the adverse effects of external shocks have been on a decline, a strong and
competitive export industry is helping the German economy out of a three-year period of near stagnation. In 2004, an impressive 10% growth in exports and 8 % growth in imports from the previous year were seen.
Main exports from Germany are motor vehicles trailers and semi-trailers, electrical machinery, chemicals and chemicals products.
European countries remain the top-trading partner of Germany having 2/3 shares in Germany's total trade. Among others countries US, China, Japan, South Africa, Canada, Brazil, Australia and South Korea are the other countries, with which Germany has substantial trade links.
After losing in the WW-II, Germany started to rebuild its economy and indeed enjoyed remarkable economic success, and this "economic miracle" made it the third-largest economy in the world after the US and Japan. The government adopted prudent fiscal and monetary policy. Also external support in the form of Marshall Plan aid, good relations between social partners, and the focus on reconstruction contributed to its rejuvenation after the devastation of the Second World War.
Germany followed an economic policy with the idea of making a social market economy. This concept demanded that market forces govern the economy, with the state retaining a role in improving the fate of the underprivileged and correcting market imperfections.
Germany had a flourishing economy, which however, was forced into a decline curve after the unification of East and West Germany in 1990. It was the differences between the economic systems of the two portions that caused the economy of East Germany to deteriorate.
Challenges Facing Germany
This accompanied with the country's ageing population and high rate of unemployment has pushed social security outlays to a level exceeding contributions from workers. In the year 2002, the economic growth fell short of 1%and in 2003 no growth was observed.
Domestic demand has been declining over the last couple of years, as poor labour market performance has weighed on consumer sentiment and business confidence. The labour market still suffers from weak economic growth and distorted incentives, with both contributing to problems in taking up work and providing employment. However, corporate restructuring and growing capital markets are laying the foundations to allow Germany to meet the long-term challenges of European economic integration and globalization.
The major challenges are to connect
fiscal consolidation to public sector reform and to increase the capacity of the economy to create employment and increase productivity growth. Further, there remains considerable scope to foster the creation of new enterprises and widen product market competition, thereby also maintaining the strong innovative capacity of the economy.
Eliminating entry barriers and making more progress in reducing administrative overheads should further strengthen competition in product markets. The part of the large German procurement market which falls below EU thresholds should be opened to greater competition, requiring among other things making transparent the multitude of regulations on lower levels of government.
Furthermore, labour markets should be made more flexible and the scope for competition should be increased. Also, Reducing administrative dullness, would improve the capacity of the German economy to innovate and contribute to higher potential growth.
