ECONOMIC REPORT: GERMANY VS EU

04.12.2022
Jimena Liz & Teresa Santos
Macroeconomics
 Introduction

The following report will be analysing the German economy and at the same time comparing
it to the European Union. In order to do so four main aspects will be commented on:
1. GDP (nominal and real) and its components
2. The labour market
3. Inflation
4. Public/external balance
Information obtained from Eurostat regarding the years 2000-2021 will be analysed in order to
reach a final conclusion; finally discussing the main findings.

2
 Executive Summary

The German economy experienced an important hit in 2020, followed by a decade-long growth.
The initial COVID-19 pandemic was brought under control with less strict containment
measures than in any of its European Union neighbours thanks to the high capacity of the health
sector capacity and early, testing, tracing and isolation of cases. The economy has been
prejudiced by the collapse in global trade. Europe's major trading partners have been hit hard
by the crisis and the slowdown in global investment has driven down demand for capital goods.
Because of this Germany´s GDP fell reaching a negative growth rate of -4% during 2020, as
well as the values registered for net exports to a 2.6%. Nevertheless, the country experienced
growth after this crisis period, reaching a growth rate in its GDP of 3%.
Comparing this situation with the one experienced during the 2008 crisis, it can also be said
that Germany´s economy recovered at a much faster rate than some of the other European
Union countries: even if GDP fell to a rate of -4% in 2009, in the coming years it grew, reaching
levels of 4% in the increase of the real GDP.
The government-sponsored short-term work scheme helped to mitigate rising unemployment.
However, short-term employment contributed significantly more to the decline in the demand
for labor than did unemployment. Its unemployment rate of 3.9% in 2020 makes Germany one
of Europe's labour market champions. This compares with a 7.1% rate in the EU, as a result,
finding work may be a bit easier in Germany than in many other European countries. A highly
developed economy does have some drawbacks. The cost of labour is very high in Germany,
its earning expectations are comparable to those of other highly developed European countries
like the United Kingdom, the Netherlands, and France.
Germany´s government deficit fell in 2021, reaching a level of -3.7% compared to -4.3% rate
reached during the deep recession, the measures taken to contain the COVID pandemic made
a major contribution to rising general government expenditure in the last years. The same
happened during the 2008 recession, in which public savings decreased 6% with respect to the
previous years.
Finally, soaring consumer price growth is the greatest threat for German output, Finance
Minister Christian Lindner said. “Prices are soaring, that’s the biggest danger for economic
growth -- it undermines the substance of our economy,” Inflation growth has been recurrent
during the recession periods; specially in 2008 when it reached 2.8% of general inflation.

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 Analysis of GDP and its components

Both nominal and real GDP are macroeconomic statistics that help measure the value of
goods and services of an economy during a specific period of time. The difference between
nominal and real gross domestic product is the fact that the real one is calculated considering
fixed prices of a base year, while the nominal one takes as reference the present year.
The evolution of these variables’ rate of change can be seen in the following chart from 2001
until 2021.
0.08
0.06
0.04
0.02
0

2012

2016
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

2013
2014
2015

2017
2018
2019
2020
2021
-0.02
-0.04
-0.06
-0.08

Germany real GDP Germany nominal GDP

It is important to mention that the real and nominal rate of change of the GDP behave
similarly, seeing that the nominal values are always higher or very similar to those given for
the real. As real GDP takes into account the adjustments for changes in inflation, when nominal
is higher than real GDP, there is inflation and vice versa. Firstly, Germany experienced more-
likely steady and continuous growth in its GDP at the beginning of the century, reaching a peak
of growth with respect to the past year in 2006 in the real GDP and in 2007 in the nominal
GDP. Between these years there is a big gap between real and nominal values, which means
that there was more inflation in this period. The other stage which is important to analyse is
the crisis period of 2008-2013 in which a big decrease can be seen reaching negative values in
GDP growth. Nevertheless, Germany´s recovery to said crisis was rapid: as seen in the chart
during the year 2009 the GDP grew significantly with respect to the past year. After the
financial crisis, the European Central Bank cutting-rates depreciated the Euro, and German
exports rose, taking advantage of the situation, making recovery easier. Following this
situation, the GDP grew again at a stable pace, reaching again negative values in 2020 due to
the covid-19 crisis. Nevertheless, and as in the case of the 2008 crisis, Germany recovered
easily from the crisis experiencing a growth in its GDP in the year 2021, reaching levels of 3%
and 5% for real and nominal values respectively.

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Overall, the country´s economy remains strong, and presents a trend to increase, the GDP grew
despite the difficult conditions in the European and global economy such as the covid-19 crisis
and the on-going increase in prices. The average rate of growth of Germany during the 2001-
2021 period was 1.109% for real GDP, the European Union´s average value for growth of its
real GDP is 1.275% .The German values are similar to the EU ones, therefore we can say that
Germany has a developed economy.
Moreover, having seen the evolution of Germany´s GDP growth rate the conclusion can be
reached that the country has a developed economy. A developed economy is characterized by
a relatively high level of economic growth and security and can also be evaluated with the GDP
per capita, which for Germany was “50,794.95 U.S. dollars in 2021”, ranked between the top
twenty countries with the highest value obtained for this variable.
This country is the largest economy of the European Union, and the fourth biggest in the world,
preceded by USA, China, and Japan, this is mainly because its high level of innovation and
strong international export focus.
There is a similar behaviour in 0,06

the evolution of the real GDP in 0,04

0,02
Germany and in the European
0
Union, however there are some
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
-0,02
differences. Firstly, during the
-0,04
years 2001-2005 the European
-0,06
Union experienced more or less a
-0,08
stable growth in its real GDP in Germany real GDP EU real GDP

comparison to the previous years,

always reaching positive values, while Germany´s real GDP growth reached negative values
in 2002 and 2003. Nevertheless, its GDP experiences a growth in the coming years, reaching
even levels of growth higher that the ones obtained for the European Union in 2006. During
the crisis of 2008, Germany´s real GDP decreased more than the EU in 2009, however this
country recovered faster from the crisis, obtaining a much higher growth rate than the European
Union during 2010 until 2014, and in this period the EU even reached negative levels of growth
in its real GDP. From this year onwards, the EU experienced a growth rate similar to the
German one, although it grew notably more in the couple of years previous to the crisis of
2020, in which both experienced a decrease in its growth, the European being more drastic than
Germany´s one. Moreover, European´s growth after 2020 was higher than Germany´s one.

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This graph represents the average rate of change of the different components of the GDP
in Germany: consumption, investment, government expenditure, exports, and imports.

Consumption, which represents private expenditures by households, remains more or less

stable, experiencing some falls in 2008 and 2009 due to the recession, however it recovered
and grew in the coming years until the crisis of 2019 where it fell again, and even more than in
the previous recession, due to the Covid crisis. On the other hand, we see that in the first years
of the century, investment, which refers to expenditures made by businesses and home
purchases by households, followed a trend of decrease with respect to past years, experiencing,
however an increase in 2006, and this situation of growth continued until the 2008 crisis,
reaching negative values in 2009. In fact it is the variable that decreased the most in this
recession. When the country began to recover, investment fell again in 2012 because of the fear
experienced by investors of a second recession. After this situation, it rose again and ended up
falls in 2019 due to the covid crisis, however this fall was not as important as the one
experienced in the crisis of 2008.
The government expenditure´s growth remains constant, but in the two recessions (2008 and
2019), it can be seen that it rises because the country has an expansionary fiscal policy, which
consist in increasing aggregate demand directly through an increase in government spending.
Exports in Germany in general are very high. Germany is a major international trading
country, their largest exports include those like motor vehicles, and components for these,
machinery, computer, and electronic equipment, and chemicals. All in all, Germany is the most
“open economy” of the G7 countries. Like all other components, except government
expenditure, the growth of exports fell in the crisis of 2008 and again during the crisis of 2019.
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 This can be explained due to the lack of industrial production during these years, in 2019
China´s demand for German products fell, among other reasons. Finally, imports, which are
those goods or services bought in one country but that were produced in another. In the graph
it is shown that there was a growth period for imports, falling during the 2008, and increasing
again as the country recovered from this recession. Nevertheless, with the 2019 crisis the
growth rate decreased reaching a level of -0.1% with respect to the past year.

In the following graphs, the evolution of the GDP components corresponding to Germany
and the European Union can be seen.

GERMANY EVOLUTION EU EVOLUTION

0.7 0,6
0.6
0,5
0.5
0,4
0.4
0,3
0.3
0.2 0,2

0.1 0,1
0 0
2004

2011

2017
2000
2001
2002
2003

2005
2006
2007
2008
2009
2010

2012
2013
2014
2015
2016

2018
2019
2020

2000
2001
2002
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2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
C I G NX C I G NX

Firstly, in Germany, with respect to consumption, we see that from 2000 to 2006 it remained
constant at a rate of 57%, in 2006 it began to fall to 55%, and in 2008, in deep recession, it fell
to 53%. As the country recovered, it increased again but did not reach the figures of the first
years. In 2020, due to the sanitary crisis, consumption fell again.
With respect to the investment, we see that in 2000 this variable reached its higher figure, from
that year on, investment gradually decreased, until 2008 in which we can see a rise, however
not reaching the levels obtained in 2000. Over time, investment decreased again reaching a
level of 19%. In 2019 and 2020, it increased again.
The government expenditure rose during the recessions in 2008 and 2020, remaining stable
during the other years. This is due to the country's fiscal policy, which increases its public
spending in periods of crisis.
Net exports are a measure of a nation's total trade; it is the value of a nation's total export
goods and services minus the value of all the goods and services it imports. A nation that has
positive net exports have a trade surplus, while negative net exports means that nations have
a trade deficit. In the case of Germany, we see that it is positive so it would have a trade

7
surplus. With constant values, and a tendency to grow, except during the recession period of
2008, reaching an all-time low in 2009.
With respect to the EU in general, we can observe that consumption remains constant until
2007 when it drops, it grows again in 2009. In the following years, it remained constant at an
approximate rate of 54% until 2019 and 2020, when it dropped again due to the Covid-19 crisis.
The investment starts with stable growth levels, reaching a maximum level of 24% in 2007,
which, however, decreases in the years following the crisis. It reached a minimum in 2013, and
later returned to growth in 2014 rising to a level of 22.8% in 2019. Investment fell again in
2020, however not as much as it did during the 2008 crisis.
Government expenditure remains constant with rates ranging between 20% and 21%,
especially after the 2008 crisis. In 2020 it went up to 22.0415%. As in the case of Germany,
the EU had more public expenditures during the crisis periods.
Lastly, net exports, already explained above, affect the EU in the following way: in the first
years it has low net exports values, which, however, started to rise in 2013, when it grew 4.11%
with respect to the previous year. This situation of growth continued until 2019, when it drops
by 2.9% compared to the previous year due to the crisis.
The most important variable of the GDP is the consumption
in both cases, as it is the one with the most weight. The
consumption average values of Germany (54,9234%) and EU
(54,6584%) as we can see are very similar.
We can reflect that Germany's net exports are larger than those
of the EU because Germany is a high production country. It is
the country in the European Union with more exports due to its
high export level of automobiles.
Given the weight of Public Expenditure on GDP, we have to know that the higher the
percentage, the more intervention by the State and the lower the percentage, the more liberal a
country is. If the percentage is around 30%, it will be social democrat country.
Germany, with an average of (19,2800%) is closer to a liberal economy than to an
interventionist one. In the EU, with an average of (20,9818%) there may be more intervention
as the percentage is higher but not as much in Nordic countries. As they have values between
14.5% (United States) a 25% (Nordic economies), these are in at an intermediate where the
state intervenes but does not play such an important role as in Nordic countries.

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 Analysis of the labour market

According to the German National Institute of Statistics DEstatis, there are over 84 million
people living in the country. However, in order to analyse the labour market correctly, it is
important to divide German society into working age population, and non-working age
population.
When referring to working age population it is important to consider all those individuals
ranging from ages 15-64. Inside of this category, active and inactive people can be found. The
active population includes employed and unemployed persons. Those which are inactive are
those that are not working, not available for working nor looking for work.
Germany´s total labour force includes over 46,402 thousand people, and upon these numbers
we can create a distinction between employed and unemployed. According to DEstatis in 2021,
the number of persons in employment was 44,980 thousand, while the number of unemployed
was as low as 1,536 thousand people, being Germany´s unemployment rate of 3,3%.
An analysis on the evolution of Germany´s unemployment with the information obtained from
Eurostat will be made.

Evolution of Germany´s unemployment rates

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10

Germany unemployments Germany NAIRU

As shown in the table found above, Germany started the century with a considerably high
unemployment rate, reaching an all-time high during the beginning period of the economic
crisis between the years 2005 until 2007, reaching double-level figures during several years.
However, the unemployment rate started decreasing in the year 2007, and although it
experienced growth during the coming years of the crisis, the levels that were reached cannot

9
be compared to those of 2005. The unemployment rate decreased again in the year 2010 and
kept decreasing considerably until reaching a level of unemployment of 3.9% in the year 2020.
Before the 2008 crisis, Germany struggled with high unemployment for cultural and historical
reasons. The reunification of East and Western Germany after the fall of the Berlin Wall had a
negative impact on the employment rates as many workers lost industry jobs. Germany´s high
unemployment rates have often been linked to high levels of employment protection, high
labour costs, and a strict regulation of labour markets. Because of this, the all-time high level
reached in 2005 can be explained. Since then, the rate has eventually decreased.
This decrease can be explained by the Hartz Reforms, introduced between 2003 and 2005
which included actions such as: restructuring the Federal Employment Agency, increasing job
creation by promoting part-time employment and self-employment, improving the placement
of the unemployed by creating job centers throughout the country and promoting employment
opportunities, especially for young and elder people.
Although the German economy suffered from the consequences of the coronavirus pandemic,
a strong government response protected jobs and firms, that is why, even if there was a growth
in the unemployment rate, it was not significant. During the former chancellor´s, Angela
Merkel, period of Govern, the government made extensive use of “Kurzarbeit” short-time
work scheme, which aimed to avoid mass layoffs during recessions by providing subsidies to
companies to keep the salaries of their employees. Nowadays, the overall labour market
remains stable, according to Daniel Terzenbach, head of the regions at the Labor Office, despite
the energy crisis and experiencing record inflation rates. The highest unemployment rates were
reported in Bremen (10.4 percent) and Berlin (8.9 percent) and the lowest rates in Bayern (3.3
percent) and Baden-Württem-berg (3.8 percent).
On the other hand, it is also important to analyse the labour market regarding sex. As we can
see, the European Union has a higher number of unemployed women, while the situation in
Germany is the opposite; men
unemployment is higher. It is important to
see the employment gap between men and
women in the European Union. There was
a great difference between the male and
female unemployment from the year 2000,
in which the rate of unemployment for men
was 8.4%, while the one for women reached

10
a level of 11.4%. These differences were quite notable until the year 2010, in which the gap
was reduced, and has kept a controlled rate to the present day.
However, this situation has not arisen in Germany; although there is a difference between
male and female unemployment it is not as high as in the European Union countries.

Okun´s Law predicts a negative relationship between the variation change in the GDP
compared to the variation rate of the change in unemployment.
In the case of the European Union, we can
see that the inverse relationship between
the change in the unemployment rate and
the change in GDP is very strong because
the R2 is 0.6905 and that is very high as it
is close to 1.
The slope is -1.8%, which means that
unemployment rises by 1% when GDP falls by 1.8%, i.e., unemployment varies less than GDP,
which is positive in crisis situations as less employment is destroyed. The cut-off point with
the Y-axis is approximately 1%, so for there to be no change in the unemployment rate, GDP
must rise by 1%. If it were to rise, but less than this figure, unemployment would tend to
increase.
The cut-off point with the X-axis is at approximately at 0.6%, so when GDP is unchanged,
unemployment would rise by about 0.6%.
On the other hand, we can see that in the case
of Germany the inverse relationship between
the change in the unemployment rate and the
change in GDP is very weak because it is
0.3184, we see that it is closer to 0 than to 1.
The slope is -1.6%, which means that
unemployment rises by 1% when GDP falls
by 1.6%.
The cut-off point on the Y-axis is approximately 1%, so for there to be no change in the
unemployment rate, GDP would also have to rise by 1%.
The cut-off point on the X-axis is approximately 0.8%, so when GDP is unchanged,
unemployment would rise by 0.8%.

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The differences we can see between the Okun´s Law in the European Union and the one of
Germany is the strength of the relationship between the studied variables, given by the R^2
parameter. The European Union has a higher value than Germany. This situation arises due to
the high barriers of the labour market in the latter country; this means that even if it is harder
to find employment, once individuals are employed, the companies do not lay-off workers at
the same rate as in other countries in the European Union.

A comparison between the unemployment and NAIRU (Non-accelerating inflation rate of

Unemployment) will be made. The NAIRU explains that there is a non-existing relationship
between the inflation and the unemployment, given by the Philips curve, as the NAIRU
assumes a stable inflation.
When the unemployment rates fall below the NAIRU, prices tend to rise, on the contrary, when
the unemployment rate is higher than the NAIRU, prices tend to decrease. Both situations can
be seen in the European Union and in Germany.
As seen in the case of Germany, the greater difference between the given unemployment rate
and the NAIRU happens in the years 2004 and 2005, however the values stabilized in year
2007 and this trend has kept going, incurring in slight increases of the unemployment rate
against the NAIRU during the years. It is also seen that in the years 2011 and 2019, the
unemployment rate reached lower levels than the NAIRU.

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 Analysis on the inflation

Inflation is a rise in prices, which can also be understood as the decline of purchasing power
over time. The rate at which purchasing power falls is often reflected in the average price
increase of a basket of selected goods and services over a given period in time. Inflation can
be contrasted with deflation, which happens when prices drop, causing an increase of
purchasing power

One measure of inflation is the GDP deflator, which measures the value of goods and services
produced in an economy during a given period of time, by measuring the differences between
real and nominal GDP. It helps to see to what extent the increase in GDP has happened due to
higher prices rather than an increase in production.

When talking about the underlying inflation rate (also referred to as core inflation), it is
important to consider that it is slightly different that the normal inflation. It is known that the
latter is based on shifts in a basket of certain goods and services that are consumed; on the other
hand, the underlying inflation rate does not take into consideration volatile goods such as
petrol, electricity, or gas, therefore proving to be a more stable indicator.
Therefore, in both graphs representing the comparison between Germany´s and the European
union´s general and core inflation, the values shown for the general inflation are higher and
more volatile, while the core inflation is more stable, especially during the periods of crisis. In
Germany, both the inflation rates and the values obtained for rate of change of the GDP deflator
have been fluctuating constantly. It is seen that the rate of change of the GDP deflator behaves
similarly to Germany´s core inflation, and that the values shown for the general inflation are
higher (and lower when there is a decrease on these variable) and is more volatile.

GERMANY´S INFLATION VS. GDP DEFLATOR EU´S INFLATION VS GDP DEFLATOR

3,5 4,0
3 3,5
2,5 3,0
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Germany general inflation Germany core inflation European Union core inflat ion European Union general inflation
RATE OF CHANGE (GERMANY) RATE OF CHANGE (EU)

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Negative inflation rates are not common, and therefore are only accomplished in a few
countries. This indicates a fall in prices and goods are cheaper for consumers, when this
happens, deflation appears consequently. Looking at the data obtained for both region´s
inflation, it can be said that in none of the periods from 2003-2021 deflation was experienced
in Germany, nevertheless, the EU´s value for GDP deflator reached a negative value in 2009.

In the first place, a comparison between Germany´s general inflation and its GDP deflator will
be made. Even if sometimes these variables behave similarly, often they reach values that differ
from each other greatly. During the first years the values were close to each other, and relatively
low; being of 1.1% for the general inflation and 1.3% for the GDP deflator. Overall, during
these first couple of years both inflation rates met the European Central Bank´s target, which
is of 2%, and in occasions such as the previously mentioned, the values were even lower than
the established target. Nevertheless, in years 2008 and 2009 notable differences between the
general inflation and the GDP deflator are seen; while the latter experienced a growth, general
inflation reached an all-time low level in 2009.

GERMANY´S INFLATION VS. GDP DEFLATOR

3,5
3
2,5
2
1,5
1
0,5
0
03 04 05 06 07 08 09 10 11 12 13 14 15 16 1 7 18 19 20 21
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Germany general inflation RATE OF CHANGE (GERMANY)

This is because, although at first glance it may seem that both variables measure the same thing,
there are a few key differences. The GDP deflator takes into account the goods produced within
the country; and is not bothered with imported goods, however, it reflects the prices of all
products. In the GDP deflator, the basket of goods and services in a year is weighted by the
market value of all the consumption of each good therefore it is allowed to change with people’s
investment and expenditure patterns since people do respond to varying prices. On the other
hand, Consumer Price Index, indicates the prices of a representative basket of commodities
procured by the consumers. It uses a fixed basket of goods and services and is a widely used
measure of the cost of living faced by consumers of a nation. When a country´s population is
not consuming, it is important to see the GDP deflator, as this indicator measures the

14
production. Therefore, it makes sense that when there are periods of crisis these variables have
different values. In the recovery period of Germany´s financial crisis these values were close
to 2 and similar to each other, still keeping in line with the target established by the ECB. Since
2013 there have been important differences between the variables; the GDP deflator being
greater than the general inflation. This situation continued until 2017 and 2018; years in which
the values were very close. A great drop in the general inflation and an increase in the GDP
deflator happened as a consequence of the pandemic, eventually stabilizing and reaching
similar values in 2021: the CPI being 3.2, and the GDP deflator 3.06.
Inflation in Germany in 2021 stood at above the rates achieved in 2020, mainly due to the high
monthly rates recorded in the second half of the year. The current upturn is a particular effect
of the temporary reduction of VAT in the second half of 2020, the effects of the crisis, including
supply problems and significant price increases in the early stages of the economic process, are
increasing, and these are partially responsible of the increase in the inflation rate. As the rate
is above the target, the country must fight against high inflation.
Similarly, the GDP deflator and general inflation follow more or less the same trend in the EU
as in Germany. The biggest differences between the variables can also be seen during the period
of the 2008 crisis, but regarding the covid-19, the variables did not change as much as they did
in Germany, and differed after this recession.

Lastly, a comparison between the averages of the values obtained for the core inflation of the
EU and Germany will be made.
It is important to note that both values are below the
target established by the CEB, so in an overall view,
both regions have normal levels of inflation. On an
important note, Germany´s core inflation is slightly
lower than the EU, Germany being below the average.

15
 Public and external balance

The fiscal policy of a country is the measures that the Government establishes to stabilize the
economy by manipulating the levels and allocations of taxes and government expenditures.
This is concept is key in the economy, as it affects the total amount of output produced, or
GDP. There are two types of fiscal policies: expansionary and contractionary. The first one
consists in increasing
Public Savings
government expenditure, 4,0

decrease in tax revenue, or a 2,0

combination. On the other 0,0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
-2,0
hand, the latter involves a
-4,0
decrease in government
-6,0
spending, and increase in tax -8,0

revenue or a combination of European Union - 27 countri es (from 2020)

Germany (until 1990 former territory of the FRG)
the two, and it is often used to
slow economic growth.
In the case of Germany, during the first years of the century until 2007 the economic policy
was expansionary, due to the negative levels of public savings. Even if the value was positive
in 2007, the values were still negative until 2012, in which the public savings of the country
were mainly positive, and this trend was constant until 2019. In the coming years, the country
incurred in public debt. This situation can be explained because of the attempts of the central
government to re-activate the economy after the COVID-19 crisis.
It is important to mention the debt brake: Schuldenbremse, which was a fiscal rule that was
incorporated in 2009 in Germany´s constitution in order to limit the issuance of Government
debt. This can therefore explain the positive public savings values. However, during the
sanitary crisis in 2019, the parliament suspended this brake temporarily, and also made fiscal
efforts to push the economy, such as increasing medical spending, giving support to households
and businesses, as well as increasing public spending on green investment, digital infrastructure
and healthcare.
Lastly, in the European Union, the values of public savings have been negative since 2000 and
remain negative until now. There are three main years that have noticeably low values, which
are 2009(-6.0), 2010 (-6.0) and 2020 (-6.8), this situation can be explained by looking at the

16
efforts of the European Union to re-launch the economy after the crisis that took place during
these years.
The average for the public savings from 2000 until 2021 is -1.3%. If we calculate the average
from 2008 to 2013 the value obtained is -1.4%. As we can see these are similar; the difference
is 0,01%, as in Germany the 2008 crisis did not have the same prejudicial impact as in other
EU members, therefore there are not as many differences regarding the amount of public
savings.

Net exports measure a country total trade, it is the total exports minus the value of its total
imports. A positive net export number indicates a trade surplus while a negative number means
a trade deficit. As Germany has a positive number of net exports, it has a trade surplus.
Public savings refer to the government’s money left after paying expenses. Is the tax revenue
minus the government expenditure.
The twin deficit happens when a
country is importing more than it is
exporting and the country´s government
is spending more money than it is
generating.
This theory doesn’t apply in the case of
Germany. We can see that even if the
government has has debt, the net
exports are always positive and larger
than the imports. We can see by comparing the Net exports and the Public Savings of Germany
that the Net deficit is not fulfilled because there is more investment than savings, and we can
see this because until 2012 the SPU is negative. From 2012 onwards we can see that the SPU
is positive, but it is still not fulfilled because savings are not equal to investment. From 2020
onwards it becomes negative again and this can be associated with the Covid crisis.

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 CONCLUSIONS

The current economic situation in Germany is strong. This country is considered to be the top
trading nation in the European Union and one of the most international economies in the world.
As seen in many nations, Germany has taken economic hits during the crisis of 2008 as well
as during the global pandemic. Nevertheless, it is recovering well; the GDP experienced an
increase despite the difficult conditions in the European and global economy such as the global
pandemic and the on-going increase in prices.
German economy depends on the import of Russian gas, therefore it is currently in a risky
position, as the price of gas has increased, causing power and gas expenses to rise. GDP will
decline consequently, and there will be a predicted inflation of 7% by next year.
When measuring economic openness, Germany is thought to have a high percentage with
respect to some of its EU neighbours, being well beyond the EU average.
Moreover, the country has an economy which is characterized by a highly qualified labour
force and has a surplus of qualified jobseekers in occupational areas such as tourism, childcare
workers, food industry professions, among others. Largely because of Germany´s fiscal
flexibility, large amounts of current account surplus have been directed to economic stimulus
packages, and adaptable short-term programs that have kept unemployment at a low rate,
recovering from the effects of the COVID-19 crisis better than other European Union countries.
Even with the new state support initiatives, spending should remain relatively flat compared to
prior years, while tax collections are anticipated to increase in 2022. The public balance will
improve as a result, but the deficit will continue for a third year running. The public debt ratio
should be steady due to the low interest rates. The surplus on Germany's current account should
decrease. Export growth might slow down as a result of recent supply-chain disruptions, while
nominal imports may rise as a result of increased import prices. Additionally, the services
balance could gradually return to a tiny deficit once international travel restrictions gradually
loosen, but the investment income balance (surplus) and the current transfers balance (deficit)
should only experience minor adjustments.
Lastly, Germany´s fiscal situation is strong; however the Government will introduce measures
to provide broad economic relief for the population by adding supplementary budgets that
would address spending areas affected by the ongoing war in Ukraine.

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