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 in 2020 due to the outbreak of the COVID-19 pandemic, the country grew an estimated 3.1% in 2021 (IMF) despite the fact that the manufacturing and construction sector have been struggling with supply shortages. Recoveries in private consumption and exports are expected to drive growth in 2022, with a projected GDP growth of 4.6% (IMF). Investment shall also be supported by the implementation of the European Recovery and Resilience Plan. In 2023, GDP is expected to grow by 1.7%, assuming a normalisation of supply and demand dynamics, though much will depend on the global COVID-19 situation.

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, which reached an estimated 5.7% in 2021. The phasing out of measures is set to noticeably reduce the deficit thereafter, to 1.6% in 2022 and 0.3% in 2023 (IMF, although the European Commission forecast is less optimistic, at 2% and 0.5%, respectively). Similarly, the debt-to-GDP ratio grew to reach 72.5% in 2021. However, the country is expected to return on a debt reduction path this year (69.8%) and in 2023 (68% - IMF). Consumer price inflation was estimated at 2.9% in 2021, mostly due to rising commodity and energy prices. In 2022, inflation is projected to ease to 1.5%, before slowing further next year (1.3%). Germany’s current account balance returned to the pre-pandemic level in 2021 and should increase in the upcoming years thanks to the rising demand from the country’s main business partners.

Unemployment was estimated at 3.7% in 2021 (IMF). Hiring expectations and the percentage of businesses reporting labour shortages returned close to or higher than the pre-crisis level, setting the stage for a resumption of employment and wage growth. The IMF forecasts a gradual decrease of unemployment to 3.6% this year and 3.5% in 2023. With a GDP per capita (PPP) of USD 54,263, Germany is among the wealthiest countries in the world (World Bank). Nevertheless, according to data by Destatis, around 17.4% of the country's population is at risk of poverty or social exclusion (latest data available).

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 3.004.004.004.004.00
GDP (Constant Prices, Annual % Change) -3.72.61.5-0.31.5
GDP per Capita (USD) 4651484952
General Government Balance (in % of GDP) -2.9-3.0-3.0-1.8-1.1
General Government Gross Debt (in % of GDP) 68.069.671.168.365.6
Inflation Rate (%) 0.43.28.57.23.5
Unemployment Rate (% of the Labour Force) 3.63.62.93.43.3
Current Account (billions USD) 272.47313.61168.74216.58272.95
Current Account (in % of GDP) 7.07.44.25.36.3

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

Note: (e) Estimated Data

 

Main Sectors of Industry

The German agricultural sector is rather limited: it contributes a mere 0.7% 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 in 2021. 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 in 2020.

The industrial sector amounts to about 26.5% 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.

Germany’s service sector is a leading employer (72% of the workforce) and contributes to 63.4% 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 98 billion (Destatis). 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 57% of the total employed persons work in SMEs, with the proportion of persons employed in micro-enterprises amounting to 18%, while 22% work in small and 17% in medium-sized enterprises.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.2 27.2 71.6
Value Added (in % of GDP) 0.7 26.5 63.4
Value Added (Annual % Change) 1.7 -7.4 -3.8

Source: World Bank, Latest available data.

 

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): September 2025 (at the latest)
Current Political Context

Federal elections were held in September 2021: while incumbent chancellor Angela Merkel decided not to run again, the Social Democratic Party of Germany (SPD) obtained 27.5% of total votes, becoming the main party in the Bundestag with 126 seats. The CDU/CSU recorded their worst ever result with 24.1%, followed by the Alliance 90/The Greens, which reached 14.8%. In December 2021, the leaders of the Social Democrats, Greens and the Free Democrats met in Berlin to officially sign their three-party coalition deal.
Meanwhile, 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.

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
- Christian Democratic Union (CDU): Conservative, Christian Democratic
- 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: 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

COVID-19 epidemic evolution
To find out about the latest status of the COVID19 pandemic evolution and the most up-to-date statistics on the COVID19 disease in Germany (including figures for each of the 16 Länder), please visit the website of the Robert Koch Institute, which is the public health institute in Germany. Furthermore, the RKI publishes daily situation reports, which can be consulted at the following link (both in English and German).
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures

To find out about the latest public health situation in Germany and the current sanitary measures in vigour, please consult the website of the Federal Ministry of Interior. Further information is available on the German Federal Institute for Risk Assessment (BfR) website, as well as on the dedicated portal of the Ministry of Health and on that of the Federal Center for Health Education (BZgA) (in German). Measures for containing the spread of the coronavirus in Germany may also be subject to local regulation, hence it is recommendable to consult local sources too for Länder-specific information.

Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For the information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the website of the German Customs (Zoll) (in German).
The “Guidelines for border management measures to protect health and ensure the availability of goods and essential services” issued by the European Commission can be consulted here. For the updated overview of the introduced trade import and export restrictions and other trade measures (ex. tariffs reductions) due to COVID-19 pandemic, please consult the section dedicated to Germany on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan

For the information on the economic recovery scheme put in place by the German government to address the impact of the COVID19 pandemic on the national economy, please visit the website of the Federal Ministry of Finance. Further details can be found on the dedicated page on KPMG's website.
The information on the EU’s economic response to COVID-19 and the actions to minimise the fallout on the EU member states’ economies of the COVID-19 outbreak is available on the websites of the European Commission and the European Council.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the German government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Germany in the IMF’s Policy Tracker platform.

Support plan for businesses
For the information on the local business support scheme established by the German Federal government to help small and medium-sized companies to deal with the economic impacts of the COVID19 epidemic on their activity, please consult the Financial Support for Business section of the German Agency for Trade and Investment (GTAI) and the website of the German development bank KFW. Further information is available on the Ministry of Economic Affairs website.
For a general overview of international SME support policy responses to the COVID-19 outbreak 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.
Support plan for exporters
For the up-to-date information on possible support plans for exporters in Germany, if applicable, please consult the website of the German Agency for Trade and Investment (GTAI). For further information on this subject, refer to the website of Federal Government’s mandatary AGA, where the Foreign Trade and Investment Promotion Scheme can also be consulted.
The European Commission adopted a Temporary Framework for State aid measures to support the economy in the COVID-19 outbreak, which enables short-term export credit insurance to be provided by the State where needed.
 

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Latest Update: November 2022