Germany Economic Structure

By: EconomyWatch Content   Date: 8 April 2010

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Germany is the fifth largest economy in the world and is also the largest economy in Europe. Germany's export-driven economy is contributed immensely by its industry and services, making up 98.2 percent of the country's total GDP in 2010.

Germany has experienced GDP growth rate of 2 to 4 percent since 2003, before the economy contracted in 2008 due to the global financial crisis. The country headed into recession with a negative GDP growth and rising unemployment rate. In early 2009, Angela Merkel's administration approved a 50 billion euro economic stimulus plan to revive the industries of the economy. With increased in foreign demand of manufacturing orders and exports, mostly from outside the Euro Zone, Germany managed to exit the recession in mid 2009.

However, many countries in the Euro Zone were trapped in recession and fell into debt crisis in 2009. Germany, being the largest economy in the Euro Zone, along with other major economies rendered relief support with stimulus packages worth billions of dollars as bailout loans for weak economies, notably Greece, Ireland and Portugal.

In mid 2011, european sovereign crisis deepens as Greece is heading towards defaulting on its loans payment. A second bailout was proposed to assist Greece in its loan payments and Germany was once again called upon to contribute billions to the 110 billion euro rescue package. This bailout is expected to create further burden and liabilities to Germany's taxpayers.

Economic Geography

Germany has a total area of  357,022 square km, with 33.13 percent of land being arable. With a large percentage of arable land, agriculture contributes only 1.8 percent to the country's total GDP and employs 5.6 percent of the labour. However, they come behind France and Italy as the third largest agricultural producer in the European Union.

With a lack of natural resources, Germany depended heavily on oil and natural gas imports for its energy needs. In 2010, the country became the 2nd largest natural gas importer and 7th largest oil importer. Lignite and potash salt are thinly significant natural resources in Germany.

Population and Labour Force

Germany has a population of 81.47 million people, and a labour force of 43.35 million people. In 2010, the country's unemployment rate is 6.85 percent.

Germany experienced high unemployment rate of of 8 to 9 percent in history, not until a free market reform agenda called 'Agenda 2010' was proposed in 2003 by then-German Chancellor Gerhard Schröder. This plan includes reducing tax payments, cutting unemployment benefits and open up labour regulation in Germany.

The plan took effect and bring down unemployment rate from 9.77 percent in 2004 to 6.85 percent in 2010 and increase the total labour force by 7 percent. This fall in unemployment rate is seen as an improvement from the rate which is high above the EU average in 2004, to drop below EU average as one of the Euro-Zone countries with the lowest unemployment rate.

Industry Sectors

Industry in Germany accounts for 27.9 percent of the country's total GDP, and employs 29.7 percent of the workforce. Germany is traditionally strong in industrial products, as prove by its export success in mechanical engineering and automobiles. The country is the world's forth largest producer and the largest exporter of automobiles, which includes world renowned brands like BMW, Mercedes-Benz and Porche.

Germany's industry growth is also driven by many small and medium sized enterprises called Mittlestand. These are family-owned companies with less than 500 employees. Mittlestand in Germany currently has more than 3 million companies, and employs more than 70 percent of the country's workforce.

Services in Germany makes up a large portion of Germany's economy, contributing 71.3 percent of the country's GDP and employs 72 percent of the workforce. Germany is renowned for its highly skilled labour force and this ranks Germany third in the provision of services among exporting nations worldwide. It is also ranked first in skill-intensive services like technical services, IT-sevices and financial services.

Although exchange of services contributes to the nation's GDP, many businesses are reluctant to cross borders, mainly due to legal restrictions and working process from the provision of services. As such, the Germany government is working towards removal of these barriers through bilateral agreements in the General Agreement on the Trade in Services (GATS), and through the implementation of the EU services directive.

 


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