Germany Economy - overview

Economy - overview: Germany's affluent and technologically powerful economy turned in a relatively weak performance throughout much of the 1990s. The modernization and integration of the eastern German economy continues to be a costly long-term problem, with annual transfers from west to east amounting to roughly $70 billion. Germany's ageing population, combined with high unemployment, has pushed social security outlays to a level exceeding contributions from workers. Structural rigidities in the labor market - including strict regulations on laying off workers and the setting of wages on a national basis - have made unemployment a chronic problem. Business and income tax cuts introduced in 2001 did not spare Germany from the impact of the downturn in international trade, and domestic demand faltered as unemployment began to rise. Growth in 2002 again fell short of 1%. Corporate restructuring and growing capital markets are setting the foundations that could allow Germany to meet the long-term challenges of European economic integration and globalization, particularly if labor market rigidities are addressed. In the short run, however, the fall in government revenues and the rise in expenditures has brought the deficit close to the EU's 3% debt limit.

Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of April 17, 2002