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Germany Economic Overview

Germany is the largest economy in Europe and among the biggest economies in the world. The current economic condition is on a negative trend due to the outbreak of the Corona Virus. The COVID-19 pandemic led to the closure of businesses and a low in sales of various products, especially in the manufacturing sector. According to the International Monetary Fund (IMF), the German economy shrunk by 4.9% in 2020 (Crédit Agricole Group, 2021). The sectors heavily impacted by the pandemic include manufacturing due to lack of movement of products, leisure, and hospitality due to cessations of movement.

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Before the pandemic, the German economy was on an upward trend with a growth of 2.4% in 2017 in its Growth Domestic Product (GDP), which was better than the previous year (Crédit Agricole Group, 2021). The country experienced steady economic growth and a reduction in unemployment. A forecast by the IMF predicts the economy grow by 3.6% in 2021 and 3.4% in 2022, depending on how well the government handles the COVID-19 pandemic (Crédit Agricole Group, 2021). The pandemic has affected Germany’s debt condition, increasing its debt-to-GDP in 2020 to reach 68.9%. The way the country holds the economy during the pandemic will determine if the nation will go back to its former glory of a dominant growing economy.

The German economy is a mixed economy as it incorporates a free market economy with regulations from the government. The free market economy is on consumer products and business services to allow for the growth of trade (Amadeo, 2020). However, most of these sectors are regulated to protect their citizens from inferior quality products and services. The tax system in Germany allows people to pay taxes depending on their income. The more one earns, the more taxes they pay, allowing everyone to enjoy benefits from the government depending on their needs. The country has tough hiring and job dismissal protocols and the influx of immigrants has escalated (Amadeo, 2020). Due to urbanization, the level of reproduction in Germany declined, with a larger population being older. However, the spike of immigrants from the Middle East seeking political asylum and escaping uprisings provided a demographic of young people, thus bringing down the median age (Higgins & Klitgaard, 2019). The immigrants did not negatively impact the economy as the German economy was growing and unemployment was declining.

Trade is a significant factor in the German economy as it accounts for the lion’s share of its GDP. According to the World Bank, trade accounts for 88.1% of the German GDP (Crédit Agricole Group, 2021). Germany is well known for its car production, with famous car brands such as Mercedes and Volkswagen. Germany is the leading exporter of motor vehicles and motor vehicle parts worldwide. The country also exports airplanes, machinery, and medical supplies and imports similar products in addition to petroleum products. The COVID-19 pandemic has led to a reduction in imports and exports, affecting trade in the country. Germany’s most significant trade partner is the European Union which accounts for 68.2% of its exports and 67.8% of imports (Crédit Agricole Group, 2021). Germany does business with other countries, with China, the United States, and the United Kingdom is among the most significant trade partners. The cars produced in Germany are typically cheaper in the country than in other countries because of taxes imposed on exports. However, some German auto-sellers sell reimported vehicles which are more expensive due to taxes.

The tourism sector in Germany has been on the rise for the past couple of decades. Germany has numerous UNESCO world heritage sights, orchestras, museums, and outstanding architecture. These factors make the country a favorable tourist destination impacting positively on its economy. In 2018, the company registered over 180 million visitors, with international visitors accounting for about a quarter of these numbers (Organisation for Economic Cooperation and Development [OECD], 2021). The high number of tourists visiting the country has resulted in the direct employment of over 2.9 million people. Domestic tourism accounts for most of the market share, with overnight stays exceeding 332 million holidays in 2018. The spending of international visitors was around 287 billion euros, signifying the importance of the industry to the country’s economy (OECD, 2021). The United States influences the German economy because of trade ties and political alignments.

The US is a significant trade partner to Germany as it is one of the considerable importers of cars, planes, and vehicle parts. The US has political ties to Germany, with the organization’s formation, such as NATO, which provides military influence in Europe and the world (George, 2020). Germany offers a great investment country to US firms and a recent example of Tesla motors building a Giga factory in Germany. These two countries depend on each other as trade partners and political allies to provide safe environments to conduct trade.

In conclusion, the German economy depends on many factors to maintain its nature as one of the largest economies in the world. In the last year, the economy of the country received a dent due to the COVID-19 pandemic. The pandemic led to the closure of businesses and cessation of movement with adversely affected trade. Trade has the most significant impact on the GDP, and the manufacturing sector accounting a large share of the trade. The country is the leading exporter of cars worldwide, with consumers from China, the US, and the UK. Tourism also plays a significant role in the economy, with people coming to see world heritage sites, museums, and architecture. Immigration impacted the population by increasing the number of young people stabilizing the demographic of the country.

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References

Amadeo, K. (2020). Germany’s economic evolution and growth. The Balance. Web.

Crédit Agricole Group. (2021). Economic and political overview in Germany. Web.

George, S. (2020). The US-German economic relationship. Web.

Higgins, M., & Klitgaard, T. (2019). How has Germany’s economy been affected by the recent surge in immigration? Liberty Street Economics. Web.

Organisation for Economic Cooperation and Development, (2021). Germany: OECD tourism trends and policies 2020. Web.

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