Germany is one of the world's most experienced market economies. It is the world's third largest economy in USD exchange-rate terms, the fifth largest by purchasing power parity (PPP), and the largest economy in Europe.
The German economy is heavily export-oriented, with exports accounting for more than one-third of national output. As a result, exports traditionally have been a key element in German macroeconomic expansion. Germany is a strong advocate of closer European economic and political integration, and its economic and commercial policies are increasingly determined by agreements among European Union (EU) members and EU single market legislation. Germany uses the common European currency, the euro, and its monetary policy is set by the European Central Bank in Frankfurt, Germany.
Most foreign and German experts agree that there are/were domestic structural problems to be addressed. Beginning in 2003, the government gradually deregulated the labour market to tackle formerly high unemployment, and employment levels have been increasing. As of October 2008, the overall unemployment rate, as measured by the German authorities, was 7.2 percent (6.0 percent in West Germany, and 11.8 percent in East Germany). As of September 2008, as measured by ILO standards the German unemployment rate was 6.2 percent (compared with 7.4 percent as measured by German standards). Further issues, which are being addressed by governmental policies, are high non-wage labour costs and bureaucratic regulations that burden businesses and the process of starting new businesses.
Nevertheless, the export oriented economy is doing extremely well. Export growth in 2007 is estimated to be 9%, underscoring Germany's role as the world's biggest exporter. GDP growth in 2006 was 2.7% and is forecast to retain its strength in the following years.
A problem can be seen in the weak domestic market, most likely stemming from stagnating wages over more than a decade. Germany finances its reunification to a large extent by social insurance contributions, forcing up non-wage labour costs. To conserve the competitiveness of German workers, unions have abandoned high wage demands since the mid-1990s. According to the Federal Statistical Office of Germany, the average net income after deduction of consumer price rises declined by 2% between 1991 and 2005). However, in 2007 collective bargaining sessions, unions' wage demands were strongly up compared with averages of the last decade.
In 2003 Germany conducted slightly more than half of its trade within the then 15-member EU, followed by, in order of volume, developing countries, Eastern Europe (including countries like Poland that subsequently joined the EU), the United States and Canada, non-EU Europe (Switzerland, Norway, Liechtenstein, and Iceland), and Japan. Increasing emphasis is being placed on trade with Russia and the People's Republic of China. The 2005 Hanover trade fair devoted much of its attention to Germany’s growing economic and trade ties to Russia, particularly in the area of energy. Germany is Russia’s top trade partner. In 2002, the People's Republic of China overtook Japan as Germany’s top trade partner in Asia, and Germany is investing heavily in that rapidly rising economic power.
German trade is consistent with the policy of the European Union (EU) to expand trade among the 25 member states and also with the goal of global trade liberalization through the latest Doha Round of the World Trade Organization (WTO). Germany uses its position as the world’s leading merchandise exporter — a fact that partially reflects the strength of the euro — to compensate for subdued domestic demand. German companies derive one-third of their revenues from foreign trade. Therefore, Germany is committed to reducing trade restrictions, whether involving tariffs or non-tariff barriers, and improving the transparency of foreign markets, including access to public works projects.
The United States is Germany's second-largest trading partner after France. Two-way trade in goods totalled $88 billion in 2000. German exports to the USA totalled $58.7 billion while US imports to Germany were $29.2 billion. Germany's main exports to the USA include motor vehicles, machinery, chemicals, and heavy electrical equipment, while imports from the USA included aircraft, electrical, telecommunications and data processing equipment, and motor vehicles and parts.
Exports and imports
German exports in 2006In 2003 Germany imported US$601.4 billion of merchandise, while imports of goods and services totalled US$773.4 billion. Principal merchandise imports were motor vehicles (US$64.4 billion), chemical products (US$63.2 billion), machinery (US$41.8 billion), oil and gas (US$39.9 billion), and computers (US$30.5 billion). Germany’s main import partners were France (9.0%), the Netherlands (7.8%), the United States (7.3%), Italy (6.1%), the United Kingdom (6.1%), Belgium (4.9%), China (3.8%), and Austria (3.8%).
In 2003 Germany exported US$748.4 billion of merchandise, while exports of goods and services totalled US$873.3 billion. Principal merchandise exports were motor vehicles (US$145.5 billion), machinery (US$103.0 billion), chemical products (US$92.9 billion), electrical devices (US$36.2 billion), and telecommunications technology (US$35.1 billion). Germany’s main export partners were France (10.6%), the United States (9.3%), the United Kingdom (8.4%), Italy (7.4%), the Netherlands (6.2%), Austria (5.3%), Belgium (5.0%), and Spain (4.9%).