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Economic and Political Overview

flag Germany Germany: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Germany is the top economic power in Europe and the fourth globally. After experiencing a historic recession following the COVID-19 pandemic, the country’s economy grew throughout the first three quarters of 2022 driven by an ongoing recovery in private consumption. However, Germany only grew an estimated 1.5% in 2022, slower than one year earlier (2.6% - IMF) due to the consequences of the Russia-Ukraine conflict: prior to the invasion, Germany was highly dependent on Russian gas, oil and coal, with around one-third of primary energy supply coming from Russia. The political situation and the resulting EU sanctions against Russia forced Germany to reduce such dependency; however, there were severe disruptions in the supply chain (especially in the chemicals and automotive sectors, which together account for almost 6.5% of GDP) and in energy imports. Sentiment indicators have deteriorated markedly towards the end of 2022; with a decrease in private consumption due to high inflation and rising energy costs. The IMF expects GDP to decrease by 0.3% in 2023 (-0.6% according to the EU Commission), before rebounding by 1.5% in 2024. Downside risks to the forecast remain, especially those related to delays in the energy supplies diversification, which may cause shortages and spur inflation in the winter of 2023-24.

The unprecedented measures taken to fight the pandemic and stabilise the economy – focused on subsidies to companies, prolongation of the short-time work scheme and increased healthcare spending for vaccination and testing - drove an increase in Germany’s budget deficit in recent years. Pandemic-related support programmes were phased out by mid-2022, but three energy support packages estimated at EUR 95 billion in direct expenditures and an energy support fund of 5.5% of GDP financed by credit allowances contributed to the third consecutive year of fiscal deficit (-3% as per the IMF), despite higher tax receipts. While the IMF expects the deficit to decline to 1.8% this year and 1.1% in 2024, the European Commission forecast is less optimistic (3.1% and 2.6%). After peaking at 71.1% in 2022, the government debt-to-GDP ratio is projected to decrease to 68.3% in 2023 and 65.6% the following year (IMF) thanks to the growth of nominal GDP on the back of high inflation, the reduction in the portfolio of bad banks and the decline of cash reserves. Inflation reached a record level of 8.5% in 2022 driven by the aforementioned surge in energy prices, rising input costs and a boost to service sector wages. A tighter labour market and the staggering pass-through of wholesale energy prices should contribute to a gradual decline in inflation, projected at 7.2% this year and 3.5% the next (IMF). For 2023, export growth is expected to recover due to easing supply chain bottlenecks and a record-high order backlog.

Unemployment was estimated at 2.9% in 2022 (IMF), down from 3.6% one year earlier, with wage growth averaging 5% on an annual basis in the first half of the year. The IMF forecasts an increase in unemployment to 3.4% this year and 3.3% in 2024. With a GDP per capita (PPP) of USD 57,927, Germany is among the wealthiest countries in the world (World Bank). Nevertheless, according to data by Destatis, around 20.7% of the country's population is at risk of poverty or social exclusion (latest data available).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 4,085.684,429.844,700.884,960.295,181.79
GDP (Constant Prices, Annual % Change) 1.8-0.50.92.01.9
GDP per Capita (USD) 48,75652,82456,03759,13561,807
General Government Balance (in % of GDP) -2.1-2.4-1.1-0.6-0.6
General Government Gross Debt (in % of GDP) 66.165.964.061.859.9
Inflation Rate (%) n/a6.33.52.22.1
Unemployment Rate (% of the Labour Force) 3.13.33.33.13.0
Current Account (billions USD) 170.76265.62309.11322.13319.77
Current Account (in % of GDP) 4.26.06.66.56.2

Source: IMF – World Economic Outlook Database, Latest data available.

Note : (E) Estimated data

 

Main Sectors of Industry

The German agricultural sector is rather limited: it contributes a mere 0.8% of GDP and employs 1% of the country’s workforce (World Bank, latest data available). The main agricultural products include milk, pork, sugar beets, potatoes, wheat, barley and cereals. According to the national statistical office Destatis, in Germany there are around 262,776 agricultural holdings, of which the majority are sole proprietorships, meaning that most farmers run their businesses alone or with their families. In recent years, the number of holdings dedicated to organic farming has been growing steadily, reaching 26,133. Especially after the outbreak of the COVID-19 pandemic, more and more agricultural holdings have been trying to reduce the risk of strong income fluctuations by diversifying their income: Destatis reports that half of all agricultural holdings in Germany obtained income from agriculture-related activities in addition to primary agricultural production. According to official EU statistics, Germany recorded the sharpest rate of increase in estimated agricultural labour productivity in 2022 (+66.8%), with the average rise in the price of output products in Germany of 29.5% outstripping that of inputs (14%).

The industrial sector amounts to about 26.6% of GDP and employs 27% of the country’s workforce. Germany is Europe's most industrialized country, and its economy is well diversified: the automotive industry is the country’s largest sector, but Germany also retains other specialized sectors, including mechanical engineering, electric and electronic equipment, and chemical products. Overall, manufacturing activities alone account for 18% of GDP. The industrial activity is concentrated mainly in the states of Baden-Württemberg and North Rhine-Westphalia, where there are more than half of the 1,600 German manufacturing companies identified as global market leaders. The sector has been affected by the Russia-Ukraine conflict, as Germany relies heavily on gas supplies from Russia; as an example, the country’s chemicals sector, the most exposed to rising power costs, expects production to fall by 8.5% in 2022, according to industry association VCI.

Germany’s service sector is a leading employer (72% of the workforce) and contributes to 63% of the country’s GDP. The sector’s growth in recent years has been primarily driven by a strong demand for business-related services and by the development of new technologies, which contributed to establishing whole new branches in the tertiary sector. The accommodation and food services sector also plays an important role, with a total turnover worth EUR 104 billion (Destatis).

Overall, the German economic model relies heavily on a dense network of small and medium-sized enterprises (SMEs), often very open to the international environment: according to the latest data from Destatis, around 55% of the total employed persons work in SMEs, with the proportion of persons employed in micro-enterprises amounting to 18%, while 21% work in small and 16% in medium-sized enterprises.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.3 27.6 71.1
Value Added (in % of GDP) 1.1 26.7 62.7
Value Added (Annual % Change) -4.6 -0.5 2.8

Source: World Bank, Latest data available.

 

Find more information about your business sector on our service Market Reports.

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
72,5/100
World Rank:
29
Regional Rank:
16



 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
8.31/10
World Rank:
5/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Frank-Walter Steinmeier (since 19 March 2017) - SPD
Chancellor: Olaf Scholz (since 8 December 2021) - SPD
Next Election Dates
Presidential: 2027
Federal Parliament (Bundestag): October 2025 (at the latest)
Current Political Context
In 2021, SPD’s representative Olaf Scholz has been sworn in as Germany's new chancellor with the vote of 395 out of 736 delegates, formally taking power after Angela Merkel's historic 16 years as leader. The government is currently run by the first three-party coalition formed of the Social Democrats, Greens and the Free Democrats.
In response to the Russia-Ukraine conflict, the government has implemented major shifts in German foreign, defence, and energy policies (aimed at diversifying energy supply, including the signing of a 15-year deal with Qatar). Relief measures worth hundreds of billions of euros helped Scholz's coalition stave off serious social unrest. Similarly, the government approved an extra budget of EUR 100 billion for military expenses after Chancellor Olaf Scholz announced a Zeitenwende (epochal change) in German defense and security policy.
Main Political Parties
In Germany, parties require at least 5% of the national vote in order to secure representation in the Bundestag. Although based on a multi-party system, the Christian Democratic Union (CDU) and the Social Democratic Party of Germany (SPD) have historically dominated the political arena. The major parties include:

- Social Democratic Party (SPD): Centre-left, Social Democrats. It is the party that obtained the most seats in the latest elections with 28% of the votes
- Christian Democratic Union (CDU): Conservative, Christian Democratic. It obtained 26.8% of the votes in the latest elections
- Bündnis90/die Gruenen: Left, Green
- Free Democratic Party (FDP): Centre-right
- Alternative for Germany (AfD): Far-right
- Christian-Social Union (CSU): Conservative, Christian Democratic; considered the ‘sister’ of CDU and based in Bayern
- Left Party (Die-Linke): Left-wing
Type of State
Germany is a democratic, federal parliamentary republic. The country has 16 states ("Länder") or provinces, which have local governments and legislatures that enjoy considerable decentralisation in relation to the Federal Government.
Executive Power
The Head of Government is the Chancellor, and is elected by absolute majority in the Federal Assembly for a four year term. The Chancellor holds the executive power, which includes implementing the law and managing the everyday business of the country. The Federal Ministers (Council of Ministers) are appointed by the President on the recommendation of the Chancellor.

The Head of State is the President, elected for a five year term by the Federal Convention (which includes the members of the Federal Assembly and an equal number of delegates elected by the provincial legislatures). The role of the President is largely ceremonial.

Legislative Power
The legislative power in Germany is bicameral. The parliament consists of two chambers: the Bundestag (the lower house), currently 709 seats, whose members are elected by universal suffrage combining proportional and direct representation, for a four-year term. The second chamber is the Bundesrat (upper chamber), which has 69 seats, and the members are the delegates of the 16 Länder (regions) of the country. There are no elections for the Bundesrat, and the term of its members is for four years. Its composition is determined by that of the regional governments. The government is directly or indirectly dependent on the support of parliament, which is generally expressed by a vote of confidence. The Chancellor can not dissolve the Parliament directly, but he/she can recommend the dissolution to the President in the event of a vote of no confidence in the Bundestag. Legislative power belongs to both the government and parliament. German citizens enjoy considerable political rights.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
13/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7
Civil Liberties:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
The summary of the EU’s economic response to the COVID-19 pandemic is available on the website of the European Council.
For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) in Germany, please consult the country's dedicated section in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: November 2023