Introduction

Germany is a country that has grown rapidly post the 2nd word war. In that period, it was called West
Germany. Although figures are not available in the World Bank database, research findings have
estimated an average growth rate of roughly 8% during 1950s and restoration of the economy as a
powerful and influential one in the world by 1960. In 1990 West Germany and East Germany got
reunified. We will now look at a few economic indicators and interpret the country’s performance since
last 50 years and also assess certain deviations in the economic trends in the reunification period and
unnatural phenomenon in early 2000s.

In our analysis we have also considered European Union as a yardstick to measure the performance of
Germany in a comprehensive manner. EU, which was founded by Germany along with five other
founding members – Belgium, Italy, Luxemburg, France and the Netherlands; has since grown in size and
today comprises of 28 members. We will also analyse how, over the years, the correlation between the
economic indicators of Germany and EU have changed.
Phillip’s Curve

Economists have projected an inverse relation between unemployment and inflation, especially in the
short run. The rationale behind this relation is that any instrument that leads to expansionary fiscal
policy will increase aggregate demand and consequent rise in demand for labour. This reduces the pool
of unemployed workers and as a result, companies have to shed more cost in terms of higher wages
thereby increasing the cost of production of goods. An increase in the cost leads to an increase in the
price which is borne by the consumer. In Germany, we can see a significant level of negative correlation
in all short runs, ranging from as high as 80% to as low as 39%; barring one.

Time duration Correlation

1980-1984 -80.95
1985-1989 -54.86
1990-1999 -68.47
2000-2007 8.85
2008-2012 -49.47
2013-2018 -38.68

In this one instance, we can see an unnatural phenomenon called stagflation. In which both inflation and
unemployment rise simultaneously. In the below graph, we can see that over the years, inflation
increased from approximately 8% in 2000 to 11% (maximum of the range) in 2005 while unemployment
grew from 1.3% in 2000 to 2.3% (maximum of the range) in 2007.

Phillip Curve
12
11
10
9
8
In Percent

7
6
5
4
3
2
1
0
2000 2001 2002 2003 2004 2005 2006 2007
Years

Inflation Unemployment

In the following graph, which illustrates the behavior of inflation and unemployment levels between
1980-1984, when the correlation was highest; we can see a consistent rise in the unemployment levels
from 3.4% in 1980 to 8% in 1984 and a significant fall in the inflation levels from 5.4% in 1980 to 2.4% in
1984.
 Phillip Curve
9
8
7
6
In Percent

5
4
3
2
1
0
1980 1981 1982 1983 1984
Years

Inflation Unemployment

The policy makers in Germany understood that since it was important for the country to rebuild its
position in Europe and in the world, it was important to keep inflation in check against unemployment
levels as a lower level of consumer prices would prompt the manufacturers to export the produce,
thereby bringing in more foreign exchange and establishing the country as a significant export player.
GDP

Gross Domestic Product as a measurement of economic growth helps evaluate the buying power of any
nation. It reflects the total amount spent on consumption of domestically produced final goods and
services and also reflects the investment expenditure in totality. Examining GDP of any economy helps in
drawing comparisons with economies of other countries and associations like EU, BRICS etc. In our
analysis we have evaluated the GDP of Germany independently and then with European Union (EU).

Since Germany has witnessed an average inflation of 2.09% from 1980 to 2018, we have considered GDP
estimates at current price expressed in national currency in our analysis. Germany’s GDP has grown by
330.47% over a span of 48 years, from 1981 to 2018, witnessing an average growth of 3.97%, annually.
The following table explains the growth trajectory of the economy over nearly 50 years:

Time Period Δ GDP in Billion ($)

1981-1984 159.668
1985-1988 219.274
1989-1992 545.839
1993-1996 218.54
1997-2000 212.76
2001-2004 121.01
2005-2008 159.42
2009-2012 365.96
2013-2016 437.11
2017-2020 386.042
Grand Total 2,825.623

Germany has been a member and co-founder of EU since 1957. The following graph illustrates the
contribution of Germany’s GDP towards the total GDP estimates of EU. We can see that in the time span
of 37 years, we can see that Germany has contributed roughly 20% to the total GDP of EU even though
size of EU has increased from 06 to 28 with notable inclusions like UK, and multiple medium sized
economies like Portugal, Spain and Sweden. In the table above, and the graph below, we can see that
the GDP Growth is maximum between1989-1992, as is the contribution towards the GDP aggregate of
EU; this is because of the reunification of West and East Germany which led to small but rapid growth
 Germany's GDP Share of EU
100%
95%
90%
85%
80%
75%
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
80 82 84 86 88 90 92 94 96 998 00 02 04 06 08 10 12 14 16
19 19 19 19 19 19 19 19 19 1 20 20 20 20 20 20 20 20 20
DEU EU

Our inference of consistent contribution is also verified by the peculiar similarity in the growth rate
trajectory of Germany and EU which is illustrated by the following graph:

Growth rate comparison

8
6
4
2

0
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
-219 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20
-4
-6
-8

EU DEU

Barring a few, in most years, we can see that the shifts for both: Germany and EU are somewhat parallel.
Even the sudden dip and rise of 2010 and 2011 respectively are similar. Numerically as well, the
correlation between the two growth rates is as high as 0.9851.
Unemployment level

Rate of unemployment is the number of individuals unemployed among every 100 individuals of the
labour force.

Unemployment Levels
12.00%
11.00%
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

EU DEU

The rate of unemployment in Germany in 2017 is 3.8% which is only approximately 2 percent less than
the rate of unemployment (5.5%) in 1991. However, in this span of 27 years, it has doubled in 2005
(11.008%) and then fallen back by 2017. However, the rate of unemployment in EU in totality has always
been more than that of Germany, except from 2003-2008. In this time period, Germany experienced
stagflation, that is both unemployment and inflation rose simultaneously which finally led to the global
crisis of 2008. On an average, EU’s rate of unemployment has been 9.23% from 1991-2017 in
comparison to 7.37% of Germany’s for the same time period.
Export volumes vs Government Spending

Export volumes in Germany and the GDP growth rate of Germany are highly correlated. The correlation
established between the two is as high as 86.28%. The graph given below also shows high levels of
similarity in terms of crests and troughs.

With this, we can infer that Germany is an export driven economy; that is, there growth is influenced by
high levels of exports. This also seems legit as Germany is home to few of the largest automobile
manufacturers in the world which boast about the best in class technology and have consequently
created a huge market of their own.

GDP Growth rate vs Export Volume

20
17.5
15
12.5
10
7.5
5
2.5
0
-2.5 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015 016 017 018
1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
-5
-7.5
-10
-12.5
-15
-17.5
-20

Export GDP Growth

Our analysis our further strengthened with the fact that the government spending as a percentage of
GDP have remained stagnant for 28 years with an average of 46.27% and standard deviation of 2.35%.
From 1991 to 2018, the GDP rose more than twice but the government spending was maintained
consistently between 43% and 50%, except for one instance while the GDP grew from 1579.8 billion to
3397.18 billion, reflecting a consistent growth. This helps us conclude that the GDP growth over the
years was not influenced by government spending and government themselves did not utilize fiscal
instruments to boost the growth. The following graph illustrates the same:
 Government Spending vs GDP
55.00% 4,000.00
50.00%
3,500.00
Percentage of Govt Spending

45.00%
40.00% 3,000.00

35.00% 2,500.00

GDP (In Billion)

30.00%
2,000.00
25.00%
20.00% 1,500.00
15.00% 1,000.00
10.00%
500.00
5.00%
0.00% 0.00
91 93 95 97 99 01 03 05 07 09 11 13 15 17
19 19 19 19 19 20 20 20 20 20 20 20 20 20

General government total expenditure GDP (Billion)