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Germany: Country Profile

Country Profile | 15 Jan 2016

KEY POINTS
Real GDP should grow by 1.8% in 2016 - up from 1.5% in 2015. Support comes
from a rise in wages and employment, additional public spending related to the
unusually large numbers of asylum seekers and a modest pickup in exports. The
rebound in exports will still be disappointing owing to weak demand in emerging
markets.

The real value of private final consumption has seen only modest growth for
several years. Gains of 2.2% were recorded in 2015 and growth of 1.6% is
expected in 2016. Consumer spending is supported by employment gains, high levels
of net immigration and low interest rates.

Unemployment was 4.6% in 2015 and it will drop to 4.5% in 2016 - a new postreunification low. The government approved a minimum wage of ?8.50 per hour in
2015. The move should reduce the degree of wage inequality.

Annual rates of growth in real GDP will gradually fall to less than 1.3% by 2020. A
modest recovery in exports and domestic demand will provide most of the support.

Chart 1 Real GDP Growth and Per Capita GDP: 2009-2015

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF


Note: Data for 2014 and 2015 are forecast. GDP per capita are in constant 2013 prices

FACTS

Area
348,500 square kilometres

Currency
Euro (? = 100 cents)

Location
Germany occupies a central position in Western Europe bordering no less than six

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other Western European countries. The country's terrain ranges from the marshes
of the Danish border in the north, to the Bavarian Alps in the south. The five
eastern Lnder, together with the eastern sector of Berlin, formed the German
Democratic Republic until unification in 1990.

Capital
Berlin

GOVERMENT

Head of State
Joachim Gauck (2012)

Head of Government
Angela Merkel (2005)

Ruling Party
The Christian Democratic Union leads a coalition with the Social Democrats.

Political Structure
The Federal Republic consists of 16 states, of which 11 are in western Germany and
five in the east. Germany has an extensively devolved political structure. At the
federal level the non-executive president appoints a Chancellor as leader. Members
of Parliament are elected for four years. There are circumstances in which some
candidates win so-called "overhang mandates", resulting in a larger parliament. The
Federal Council is indirectly elected. The Council has 69 members representing the
governments of the states. Each state has its own Parliament and Premier.

Last Elections
Elections to the Bundestag were held in September 2013. The Christian Democratic
Union now holds 255 seats while the Christian Social Union of Bavaria has 56 seats.
The Social Democrats control 193 seats, the Left has 64 seats and the
Alliance/Greens occupy 63 seats. These results bring the size of the 18th German
Bundestag to 631 members. Christian Wulff resigned as president in February 2012
after he became embroiled in a loan scandal. He was replaced by Gauck.

Political Stability and Risks


Germany already has the largest proportion of foreigners of any country in the EU
but has traditionally refused to see itself as a place where migrants settle. New
laws make it easier for skilled immigrants to enter the country and get work permits,
but more difficult for those claiming asylum. The speed and scale at which migrants
have entered Germany since mid 2015 puts the country's asylum system under
great strain. The influx contributed to Berlin's decision to reimpose border controls.
Germany estimates that one million new immigrants/asylum seekers entered the
country in 2015 - more than the entire EU combined in 2014.
The government still faces a host of problems in its efforts to rebuild eastern
Germany. Berlin is committed to transferring roughly ?80 billion in welfare and
reconstruction funding to the east every year until 2019. Despite these financial
transfers, GDP per capita in eastern Germany in 2013 was still only 66% of that in

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western Germany. Unemployment in eastern Germany is also roughly twice the rate
in western Germany. A major problem is demographic in character. If eastern
Germany were still a separate country, it would have the world's oldest population
with an average age of over 47 years.

International Issues
Germany stiffened its immigration policies in 2015, making it more difficult for asylum
seekers to gain entrance and easier for the country to expel individuals with
rejected claims. Berlin will also change the means by which it will pay benefits to
migrants, moving away from the giving of cash to benefits in kind. Germany's
policies have also sparked clashes with some eastern EU member states.

Government Finance
The government launched several fiscal stimuli during and after the Great
Recession. The additional spending ultimately pushed the public debt to ?2,143
billion in 2015, equivalent to 70.9% of GDP. Public debt (in real terms) fell by 1.7%
in 2015. Fiscal consolidation should drive the public debt down to around 60% of
GDP by 2020.
A programme of fiscal consolidation was launched in 2011. The plan included a cut
in subsidies to parents, the loss of 10,000 government jobs over four years and
higher taxes on nuclear power. Germany's budget deficit for 2011 was cut to 1.0%
of GDP. The estimated deficit fell to 0.9% of GDP in 2012 and a deficit of about
0.4% was reported in 2013. Germany managed a budget surplus equal to 0.6% of
GDP in 2014 and more surpluses are expected in 2015 and 2016.
Spending on social security and welfare accounted for 41.5% of government
expenditure in 2014 followed by spending on health (14.7%).
Chart 2 Public Debt: 2009-2014

Source: Euromonitor International


Note: Data are in constant 2014 prices

ECONOMY

Economic Structure and Major Industries


Agriculture makes up less than 1% of GDP and employs 1.8% of the workforce.
Farms are small (although larger in the east) and crops include wheat, barley,
potatoes, apples and grapes for wine making.

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Germany's manufacturing sector accounts for 22.4% of GDP and employs 20.2% of
the workforce. Manufacturing is dominated by large companies producing motor
vehicles, precision engineering, brewing, chemicals, pharmaceuticals and heavy
metal products. Automotive producers employ one in every seven workers. The
possible spillovers from Volkswagen's manipulation of emission tests to other
industries via production chains or confidence effects could create downside risks
for corporate investors. Weighed down by sluggish demand in Europe, EU-Russian
sanctions and lower investment levels in Asia, manufacturing is growing very slowly.
Subject to restrictive regulations, Germany's service sector is struggling. Banks are
downsizing and profitability is low. A new law gives the government the ability to
regulate investment vehicles such as hedge funds, private equity firms and money
market funds more tightly. More consolidation and restructuring of the banking
industry is expected. The real value of tourist receipts rose by 2.6% in 2015 and
gains of 2.9% are forecast for 2016. The services sector makes up 68.7% of GDP.

Overview of the Economy


In 2009, Germany experienced its worst recession since the Second World War. The
economy rebounded in 2010 and 2011 but another slowdown occurred in 2012 and
the first half of 2013 when weaknesses in exports and investment brought the
economy to a near standstill. Growth resumed in the second half of 2013 and in
early 2014. However, the pace slowed sharply in the second half of 2014 when
exports and confidence were hammered by the Ukrainian crisis and western
sanctions on Russia. The period of sluggish growth continued in 2015.
Germany faces a number of problems. The country's huge service sector is highly
protected and relatively inefficient. Investment as a share of GDP is lower than for
most other large economies. Finally, the country's ageing population is reducing the
potential rate of growth.

Foreign Trade
The dollar value of exports fell by 10.5% in 2015 but gains of 4.1% are expected in
2016. The share of exports in GDP amounted to 39.5% in 2015.
Germany's main export markets in 2014 included the EU (61.5%), the USA (6.8%)
and China (5.8%). Machinery and transport equipment are the largest export
category, accounting for 46.7% of the total in 2014. Exports to Russia account for
only a small portion of the total (less than 3%) but Germany is still Russia's biggest
trading partner within the EU and its Russian exports fell by 20% in 2014. German
exports to China (which consist mainly of capital goods) are also lagging as Beijing
cuts back on investment and reorients its economy toward consumption.
Germany's current account surplus was 8.3% of GDP in 2015 and it will stay at that
level in 2016. The large surplus is due in part to improvements in the terms of
trade.
Chart 3 Total Foreign Trade: 2009-2014

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Source: Euromonitor International from national statistics/OECD/IMF

Economic Prospects
Real GDP should grow by 1.8% in 2016 - up from 1.5% in 2015. Support comes from
a rise in wages and employment, additional public spending related to the unusually
large numbers of asylum seekers and a modest pickup in exports. The rebound in
exports will be disappointing owing to weak demand in emerging markets.
Inflation was 0.2% in 2015 and it will rise to 1.3% in 2016.
The real value of private final consumption has seen only modest growth for several
years. Gains of 2.2% were recorded in 2015 and growth of 1.6% is expected in
2016. Consumer spending is supported by employment gains, high levels of net
immigration and low interest rates.
Unemployment was 4.6% in 2015 and it will drop to 4.5% in 2016 - a new postreunification low. The government approved a minimum wage of ?8.50 per hour in
2015. The move should reduce the degree of wage inequality. Supported by high
levels of immigration, employment has reached a post-unification high and Berlin
expects to add 170,000 jobs in 2015. Most new jobs, however, will be in the
service sector where productivity is low. Germany still faces a looming labour
shortage as its working-age population continues to decline.
Chart 4 Real GDP Growth: 2009-2015

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF


Note: Data for 2015 are forecast

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Evaluation of Market Potential


Annual rates of growth in real GDP will gradually fall to less than 1.3% by 2020. A
modest recovery in exports and domestic demand will provide most of the support.
Business investment should also begin to recover as rates of capacity utilisation
rise. Finally, the influx of immigrants will generate its own stimulus. The economic
impact, however, is expected to be relatively small in the medium term.
Germany has much to make up in the way of productivity. Exporters are obviously
competitive but productivity in other parts of the economy (particularly the large
service sector) lags. Most productivity problems can be attributed to a shortfall in
investment. Germany invests about 17% of GDP, compared with an average of
about 20% for the OECD. German economists believe that the rate of investment
must be permanently raised by at least 3%. Reforms to bolster competition in the
service sector could raise both potential growth and investment.
Germany faces a broad-based decline in population. Its birth rate is the lowest of
all advanced countries while approximately 500,000 people forecast to retire each
year. Forecasts suggest the country could experience a shortage of up to 2.4
million workers by 2020. Increased labour participation, especially among women,
the low-skilled, and the elderly is essential. Higher levels of immigration will also
ease demographic constraints. Neither of these options, however, will be sufficient.
Without steady gains in productivity, a long-term decline in the rate of potential
growth is inevitable.

BUSINESS ENVIRONMENT
Germany's markets are comparatively competitive though regulations in some fields
are extensive. Corporate investment has weakened following the expiration of
generous depreciation rules. Labour costs are falling due to a drop in non-wage
labour costs. Reforms to bolster competition in product markets are underway.
The informal economy accounts for around 13% of GDP, a modest decline over the
past 10 years. Low levels of unemployment and a drop in statutory pension
premiums are the main reasons for the drop.
An overhaul of the income tax system has reduced the overall tax burden. In 2016,
the minimum income tax allowance will be raised, child allowances will be hiked and
pensions will be increased.
Table 1 Indicators of Business Environment: 2016
Ease of Doing Business Rank (out of 189)

15

Starting a Business
Time (days)

10.5

Procedures (number)

Dealing with Construction Permits


Time (days)

96

Procedures (number)

Getting Electricity
Time (days)

28

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Cost (% of income per capita)

42

Registering Property
Time (days)

39

Cost (% of property value)

6.7

Employing Workers
Paid annual leave for a worker with 1 year of tenure (in working days)

24

Tax Rate
Total tax rate (% profit)

48.8

Labour tax and contributions (% of commercial profits)

21.2

Time (hours per year)

218

Payments (number per year)

VAT (%)

19

Exporting
Time to export: Border Compliance (hours)

36

Cost to export: Border Compliance (US$)

345

Importing
Time to import: Border Compliance (hours)

Cost to import: Border Compliance (US$)

Protecting Minority Investors


Strength of minority investor protection index (0-10)

Resolving Insolvency
Time (years)

1.2

Cost (% of estate)

Getting Credit
Strength of legal rights index (0-12)

Enforcing Contracts
Time (days)

429

Cost (% of claim)

14.4

Source: Euromonitor International based on the World Bank

Notes: Data is sourced from the World Bank's Doing Business 2016. Doing Business
presents quantitative indicators on business regulations and the protection of
property rights - and their effect on businesses, especially small and medium-size
domestic firms. The data for all sets of indicators in Doing Business 2016 are from
June 2014 until June 2015 (except for paying taxes data which refers to JanuaryDecember 2014). Rankings are based on data sets across 189 countries.

ENERGY
Germany is the world's fifth-largest consumer of oil but has only a small amount of

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proven oil reserves. The country is a world leader in developing renewable energy.
By 2050, the government's goal is to meet half of its entire energy demand by
solar, wind, biomass, hydro, and geothermic sources, according to the German
government.
The country also has a small amount of natural gas reserves. In 2015, it produced
about 6.4 million tonnes of oil equivalent. Production has been falling in recent
years. Germany is the EU's second largest consumer of natural gas after the UK,
and consumption will rise in the future.
Chart 5 Primary Consumption of Energy (% of total): 2014

Source: Euromonitor International from BP Amoco, BP Statistical Review of World Energy

SOCIETY

Population
Germany's population has been falling gently over time. In 2015, total population
stood at 80.9 million, 1.2 million less than the figure for 2000. The number will
continue to fall erratically over the next 15 years.
Germany also has one of the world's oldest populations. The median age was 46.1
years in 2015. This was 6.3 years greater than the figure for 2000 and well above
the regional average. By 2030, median age will reach 48.3 years. The growing
number of older consumers is altering the pattern of consumption and pushing up
healthcare costs.
Fertility - at 1.4 births per female - is comparatively low. It will rise only marginally
between 2015 and 2030. The rate of contraception use in Germany is one of the
highest in Europe.
Chart 6 Age Pyramid in 2014 and 2030

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Source: Euromonitor International from national statistics/UN

Income and Expenditure


Germany's savings ratio amounted to 15.1% of disposable income in 2015 and it will
stay at that level in 2016.
Consumer expenditure per capita amounted to ?19,007 (US$21,074) in 2015. In
2016, the indicator will grow by 1.4% in real terms.
Total consumer expenditure (in real terms) will rise by 1.5% in 2016. In the period
2015-2030, total consumer expenditure will grow at an average annual rate of
1.0%. It will increase by a cumulative value of 16.2% during that period. Education
is expected to remain the strongest growing spending category in 2015-2030.
Health goods and medical services will also see substantial gains in spending, as a
result of the rapidly ageing population. Total consumer expenditure will represent
50.7% of GDP in 2016.
Disposable income per capita was ?23,040 (US$25,546) in 2015. In 2016, it will
grow by 1.4% in real terms.
During the period 2015-2030, total disposable income will increase by a cumulative
value of 15.9% in real terms - growing at an average annual rate of 1.0%.
Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio:
2009-2014

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Source: Euromonitor International from national statistics/trade sources/OECD

Statistical Summary
2010

2011

2012

2013

2014

2015

Inflation
(%
change)

1.1

2.1

2.0

1.5

0.9

0.2

Exchange
rate (per
US$)

0.76

0.72

0.78

0.75

0.75

0.90

GDP (%
real
growth)

4.1

3.7

0.4

0.3

1.6

1.5

GDP
(national
currency
millions)

2,580,060.0

2,703,120.0

2,754,860.0

2,820,820.0

2,915,650.0

3,024,187.5

GDP (US$
millions)

3,416,891.0

3,758,503.9

3,539,697.0

3,745,301.8

3,868,291.2

3,354,025.9

Birth rate
(per '000)

8.4

8.2

8.4

8.6

8.6

8.7

Death rate
(per '000)

10.7

10.6

10.8

11.0

11.1

11.2

No. of
households
('000)

40,301.0

40,439.0

40,656.0

40,984.4

41,317.2

41,608.3

Total
exports
(US$
millions)

1,216,873.3

1,433,987.9

1,376,548.2

1,432,156.6

1,479,583.8

1,308,114.4

Total
imports
(US$
millions)

1,003,195.2

1,206,535.7

1,119,754.8

1,153,062.1

1,179,610.1

1,020,522.0

Tourism
receipts
(US$
millions)

34,560.0

38,865.0

37,035.4

39,369.2

Tourism

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spending
(US$
millions)

77,580.0

86,167.0

81,235.3

85,455.5

Urban
population
('000)

59,450.1

59,460.7

59,561.5

59,822.4

60,122.1

60,399.5

Urban
population
(%)

73.8

74.0

74.1

74.3

74.4

74.6

Population
aged 0-14
(%)

13.5

13.4

13.2

13.1

13.0

12.9

Population
aged 15-64
(%)

65.9

66.0

66.1

66.2

66.0

65.9

Population
aged 65
(%)

20.7

20.6

20.6

20.7

21.0

21.2

Male
population
(%)

48.8

48.8

48.8

48.9

49.0

49.0

Female
population
(%)

51.2

51.2

51.2

51.1

51.0

51.0

Life
expectancy
male
(years)

78.0

78.4

78.6

78.6

78.8

79.0

Life
expectancy
female
(years)

83.0

83.2

83.3

83.2

83.3

83.5

Infant
mortality
(deaths per
'000 live
births)

3.4

3.6

3.3

3.2

3.3

3.1

Adult
literacy
(%)

99.9

99.9

99.9

99.9

99.9

99.9

Imports and Exports


Major export destinations

2015
Share (%)

Major import sources

2015
Share (%)

Exports (fob) to Europe

71.1

Imports (cif) from Europe

77.0

Exports (fob) to Asia


Pacific

11.4

Imports (cif) from Asia


Pacific

14.0

Exports (fob) to North


America

8.2

Imports (cif) from North


America

4.5

Exports (fob) to Africa and


the Middle East

4.9

Imports (cif) from Africa


and the Middle East

2.1

Exports (fob) to Latin


America

2.8

Imports (cif) from Latin


America

1.5

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Exports (fob) to Other


Countries

0.8

Imports (cif) from Other


Countries

0.7

Euromonitor International 2016

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