Germany Economic Analysis 2005 - 2014

Economic Performance of Germany, 2005 to 2014

Economics have many indicators to describe how an economy runs and show if the economy has improved or declined. The macroeconomic indicators that will be discussed in this essay will be the gross domestic product, the unemployment rate, and the inflation rate. Before each of the analysis begin, the indicators explored will be defined and explained to aid in understanding the analysis in more detail.

Introduction to Germany’s Economy

From “the sick man of Europe”, Germany has now become an economic miracle.

Germany is the largest economy in Europe and the fifth largest in the world. This economic success can be attributed to the unification between Federal Republic of Germany and German Democratic Republic (Hunt, 2006). However, Hunt also asserted that the unification has not been an easy process, and resulted in high unemployment rate and poor economic performances during the process and in the immediate aftermath.

Germany runs its economy under the concept of “social economy market”, ensuring the openness of its economy, that is, its free trade policy (Siebert, 2005). Unlike many of its Europe counterpart, Germany does not have a single economic central, meaning it is a poly-centric country.

Besides benefiting from a highly skilled labour force, the German’s economy is also a leading exporter, with exports account for more than one-third of its economic production. The vast majority of Germany's products are in engineering, especially in machinery, metals, chemicals and most notable, automobiles. Germany’s industrialised economy, which is Europe’s largest, generate average per capita incomes that are among the world’s highest.

Germany utilisation of apprenticeship model in the labour force has historically provided Germany with a highly skilled labour force and acted as a substitution for labour market policies (Bailey, 2004). But, in today’s rapidly changing economy, it does not function well (Bailey, 2004). To combat the chronically high unemployment rate faced by Germany in recent year, the government launched reforms which resulted in strong growth of Germany’s economy and falling unemployment.

Production Output Performance Analysis

Gross domestic product (GDP), one of the main indicators used to gauge the health of a country’s economy, is commonly used as a comparison tool to analyse an economy’s purchasing power and growth over time.

Real GDP reflects the total monetary value of all goods and services produced by an economy in a given year, adjusted for price changes (i.e., inflation or deflation), and real GDP growth rate measure the economic growth by comparing one-quarter of the country’s real GDP to the last in percentage. Both real GDP and real GDP growth do not take into account the effect of population size thus to compare prosperity of countries with different population size, real GDP per capita is used as it measures individual’s economic output in a given country.