Introduction
Germany is a leading and developed country of the Europe and has a remarkable influence on the economic structure and policies in the Europe. The country has an area of 357021 square kilometers and a population of 81.4 million people. The economic structure of Germany is social market structure. The country is rich in highly technical and skilled workforce, low levels of corruption and high capital stock. The major reliance is on the exports, and the country is the third largest exporter in the world. The economy of Germany is largest in the Europe, and the makes a fifth place in the largest economies of the world. The major portion of the revenues flows from the service industry that makes 70 percent of the overall economy. The country has performed well in the past on all the economic indicators. However, the global financial crisis has haunted the economic position of the Germany as well. The macroeconomic analysis of the Germany since 2012 has been presented in this paper, and it gives insights into the policy framework, market mechanism and the developments that have been made in this period (Breidthardt, 2013).
Gross Domestic Product (GDP)
The GDP of Germany in 2012 was 2756 billion Euros. The financial crisis struck the country in the last quarter of the 2011 and continued throughout the year. Follow an economic weak patch; the economic activity started to pick up at the end of 2012 and subsequent years. It is evident from the GDP of the country as well. The GDP has increased subsequently and was 2825 billion Euros in 2013, 2920 and 3023 billion Euros in 2014 and 2015 respectively. The GDP per capita has raised as well and reached the highest value of 37156 Euro in 2015 putting the country on the list of most developed and well-performing countries on the GDP per capita. The GDP growth rate of the Germany was 1.7% in 2015. The growth rate is expected to rise in 2016 and estimated at 1.8% in 2016 (Breidthardt, 2013).
Labor Market
The employment opportunities and growth started to rise in 2012 and remained on the rise throughout 2013. The cynical momentum was weaker in 2013, and the labor reserves were largely exhausted. The over age segment of the labor market (Over-60) show a large potential, but the declining productivity of this segment is alarming. The gap between the European market widened in 2013, and more and more people entered the Germany due to the free movement rights are given to the European nationalities except Bulgaria and Romania. The influx of the labor immigrants at the end of 2013 was 22000 and in the year 2015, this influx was further 180000 immigrants (Nienaber, 2015).
Decline in Unemployment
Germany attained a low in the employed individuals, and the unemployment rate was highest in 2011. The unemployment rate reached 7.1 percent at the end of 2011. However, the unemployment level declined in 2012 to a value of 6.9. The decline in the unemployment was focused on the second tier unemployment benefits. The long-term unemployed individuals were given paid employment, and the others were retired. However, fewer short-term unemployed became long-term unemployed. The overall effect decreased in the unemployment in the subsequent years. The unemployment rate in 2013 decreased to 6.8. The policy regarding the employment of the unemployed and state steps have improved the situation of the national labor market. It is evident from the fact the unemployment rate decreased to reach 6.4 in 2015 (Martin, 2016).
Effect of Immigration on Labor Market
The labor shortage situation in Germany has not reached an alarming level despite the high demand for labor. The reason for it is the steady influx of the immigrants and workers from the European nations. In 2015 fairly a large number of employees entered Germany from the fellow EU states. The government has granted extended mobility to labor from the EU countries like Romania, Croatia, and Bulgaria. The influx of the labor from the East European countries has also increased to reach a peak level. It is projected that the net immigration of the non-refugees will decline in 2016 from 400,000 to under 300,000. Moreover, the refugees are also entering the country, and this effect will be felt on the labor supply and the employment conditions in the coming years. Currently, the influx of the refugees has not been integrated with the labor supply system due to the missing documentation of the inmates (Reuters, 2015).
The government has introduced a statutory regulation determining the minimum wage and the employment conditions to protect the labor market and the anticipated higher unemployment rates and the technical labor shortage. This statutory arrangement will make it difficult for the immigrants to secure the jobs. The reason is the mismatch of the required qualifications and linguistic requirements and the particulars of the refugees (Nienaber, 2015).
There has been a demand for the unskilled labor in the service industry of the Germany but still it is believed that the refugees will face difficulties of securing a job at the initial phase. The numbers of refugees are likely to be less productive and face language barrier particularly after entering the Germany. Therefore, the unemployment levels increased slightly in 2014. Given the current situation of the refugee’s influx, it is expected that the unemployment will rise significantly in the coming years (Reuters, 2015).
Labor Law
The labor law of the Germany protects the workers and enhances the labor rights. It gives additional power to the unions that are predominantly active and powerful in the country. The German labor laws are powerful and substantial as compared to the other developed countries. It is evident from the “Ordinary Dismissal Law” that states that dismissal of the workers should be preceded by a notice period. The length of the notice period depends on the time served by the employee. It usually ranges from one to seven months. This law also gives the right to challenge the dismissal in the court (Nienaber, 2015).
The labor laws in the country protect the interest of the employees. “The Mother Protection Law” gives extra coverage to the female employees and defines the conditions of the employment relation between the worker and the employer. It grants the female workers up to 36 months pregnancy leave. The conditions of the leave are to be negotiated with the employer which covers the fifty percent health costs of the pregnant female worker as well. The law binds the employer to hire the worker at same benefits after the leave period. Moreover, the working conditions are better as compared to the other European countries. A work week consists of 37.5 weekends and the employees get 20 to 30 annual leaves as well (Nienaber, 2015).
Inflation
In 2012, the consumer price inflation eased initially. It was decreased, but the energy prices remained on a hike. The energy prices raised by 5% in 2012 based on the prices in 2011. The rise in the energy prices fell below 1% in 2013. Moreover, the better conditions of the employment and the labor market raised the demand for the products and services in the country leading to the inflationary trends. The prices of the food items, services, and the housing increased in the major cities of the Germany. The governmental policies supported the people combat this inflationary trend. The taxes remained at the lower rates except on the tobacco items. The inflation rates touched 1.6% in 2012 as compared to the 2.1% in 2011. However, the inflation in the energy sector remained high at 1.7% (Martin, 2016)
Fall in the Domestic Inflation
The inflation rate continued to increase throughout the period 2012-2015. However, it was highest in 2012 and 2013. The percentage increase in the inflation over the 2014 and 2015 was 0.2 and 0.3. In December 2015, the annual inflation rate of Germany slowed and fell to a record low. The pressure in the largest economy of the Europe remained weak. The prices of the consumer goods in comparison to the prices in the other European countries rose by 0.2 percent only. The declining inflation signals at the better economic performance of the country (Storebeck, 2016).
Endangered International Competitiveness
The cost of the electricity has been on a hike in Germany in the subsequent years and posing a serious challenge for the industry of the Germany. The price hike is becoming a concern for the country as if the authorities try to give bailouts to the industry it will cost extra resources. Secondly, it is an important consideration on the need of the renewable energy initiatives. If the government funds such initiatives, the competitive advantage of the country will be threatened due to the slowed economic growth. The triangle of the energy cost, economic performance, and the competitiveness is turning into a contingency that can prove to be a risk for the economy (Reuters, 2013).
The reliance on the low-carbon energy policy and moderate transition to the renewable energy sources combined with the increasing role of the thermal energy can help in maintaining the competitiveness. It is strongly suggested for the Germany to address the issue as the people rely on exports for their living. In 2012, 60 percent GDP was contributed by the exports and this value has risen to 70 percent now. The decreasing competitiveness will not only affect the industrial development of the country but will have serious repercussions for the entire German populace. The lower prices of the energy and improving the business environment in North American countries are enticing the companies to move the industrial manufacturing to those countries. This leakage of the investment can create ripples in the economy of the Germany and can lead to the lost competitive advantage of the country’s industrial sector (Reuters, 2013).
Exports
Germany has shown consistent growth in the exports as it is majorly relying on the exports for the economic growth. The percentage increase in the exports was 2.7% in 2012 as compared to the exports of the last year. This trend of increasing exports continued throughout 2013 till 2015. The exports of the Germany reached the highest level in 2014 combined with the lower increase in the imports of the country. This counter effect in the volume of the exports and the imports led to the increased value of the current account. The exports of the country have increased at a fast pace as compared to the imports since 2012. It has contributed to the trade surplus (Reuters, 2013).
The exports of the country continued to increase both to the European as well as Non-European countries. In 2015, the exports fell for the non-euro countries, and one of the probable reason is the depreciation of the Euro suppressed the substantial gains from the exports. In the third quarter of 2015, the exports to the non-euro countries have shown a more flattened trend, especially from the Far-East (Reuters, 2013).
Trade Surplus
The trade surplus of Germany was $250 million in 2014. It equals to the 7 percent of the gross domestic product of the country. The value of the trade surplus has risen in the subsequent years. The appreciation in the trade surplus has continued since 2000. Many people consider the surplus as a sign of economic development and success by arguing that the German products are of high quality and international consumers prefer the products. However, there are other countries as well producing high-quality products without incurring extra costs and surpluses. There are two important considerations underlying the trade surplus of Germany (Nienaber, 2016).
Firstly, the balance of the Euro is not right with the trade balance of the Germany. Euro is shared by the other 19 countries of the Europe as well, but it is weak for a trade surplus of the country. The IMF revealed in 2014 that the exchange rate of Germany after adjusted of the inflation undervalues the Euro by up to 15 percent. After that, the value of the Euro has depreciated by more than 20 percent. The weaker Euro is a cost advantage for the Germany and proves to be an unappreciated advantage. If the Germans had an independent currency, it would have been much stronger that the Euro reducing the trade surplus in dollar figures. Secondly, the market regulation of the Germany is conducted and checked by the strong fiscal and monetary policies that increase the trade surplus. Such policies include tight spending on the imports and decreasing the local spending (Reuters, 2015).
The trade surplus of the Germany is not a blessing but a problem when compared to the aggregate demand of the slow growing world. One of the reasons is the recessionary trend in the most parts and nations of the Europe. These countries have high domestic inflation and increasing unemployment and cannot afford to reduce taxes or increase spending for the stimulation of the demand. The saturation combined with the global financial crisis decreases the ability of the trading partners to aggravate demand for the German products. The situation is constant for the Eurozone and the rest of the world as the monetary policy in the global crisis is already touching limits (Nienaber, 2016).
Economic Risks
The unexpected fluctuations in the crude oil prices have been observed in the recent past. In the coming months, the prices are expected to fluctuate positively and negatively. The changing prices can have positive as well as negative impacts on the economic development of the Germany as well as the domestic inflation rate. If the prices increase, the economic activity can dampen. This statement has been made on the assumption that the world will regain the trade momentum particularly the Eurozone leading to the strengthening Euro. However, it can prove to be wrong in case the slowdown persists or becomes worse as it is forecasted for the economies like China (Nienaber and Carrel, 2016).
Furthermore, the Europe has witnessed the terrorist attacks in Paris and the home of the European Union. The terrorist activities and the countermeasures can impair the economic activity and can hurt the export-oriented economy of the Germany. Such protracted activities can lead to disrupted policies and conflicts among the Eurozone as the confusions on free entry and trade movements have already started among the member countries. It will hurt the expectations of the foreign investors leading to the withdrawal of the investments. The other areas of the uncertainty include the increasing influx of the refugees, favorable macroeconomic factors, and the increasing electricity prices (Nienaber, 2016).
Conclusion
The crux of the whole matter is that the Germany is a strong economy of the Europe. It has tackled a crisis, and the conditions are getting better. However, there are still many risks and problematic areas discussed throughout the paper that require strong policies to tackle. The risk of the decreasing oil prices in the international market and the devaluating Euro has put the ball in the court of Germany. However, the fluctuations can give a serious setback to the economy that has recently recovered from the crisis. It is expected that the industrial contribution to the GDP is expected to decrease given the fact that Euro stabilizes, and the oil prices rise.
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