Germany is one of the world's most advanced market economies. It is the world's third largest economy in USD exchange-rate terms,[1] the fifth largest by purchasing power parity (PPP),[2] and the largest economy in Europe.
Competition and free enterprise are promoted as a matter of government policy. However, the state intervenes in the economy through the provision of subsidies to selected sectors and the partial ownership of enterprises in sectors of strategic importance[citation needed] .
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. As a result employment levels are on the upswing and the unemployment rate fell to 7.3% (August 2007) in West-Germany. The situation in post-communist East-Germany remains problematic at 14.7%. The overall unemployment rate was 8.8%. By ILO standards, the unemployment rate was lower, at 8.1% (September 2007 figure).[3] 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 forecasted 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.
Primary sectors
In 2004 agriculture, forestry, and mining accounted for only 1.1% of Germany’s gross domestic product (GDP) and employed only 2.2% of the population, down from 4% in 1991. Much of the reduction in employment occurred in the eastern states, where the number of agricultural workers declined by as much as 75% following reunification. However, agriculture is extremely productive, and Germany is able to cover 90% of its nutritional needs with domestic production. In fact, Germany is the third largest agricultural producer in the European Union (EU) after France and Italy. Germany’s principal agricultural products are potatoes, wheat, barley, sugar beets, fruit, and cabbages. Despite Germany’s high level of industrialization, roughly one-third of its territory is covered by forest. The forestry industry provides for about two-thirds of domestic consumption of wood and wood products, so Germany is a net importer of these items.
Mining and minerals
Coal is Germany’s most important energy resource, although government policy is to reduce subsidies for coal extraction. Coal production has declined since 1989 as a result of environmental policy and the closing of inefficient mines in the former East Germany. The two main grades of coal in Germany are “hard coal” and lignite, which is also called “brown coal.”. Despite its considerable reserves, environmental restrictions have led[citation needed] Germany to become a net importer of coal. Also as of January 2004, proven natural gas reserves were 10.8 trillion cubic feet, the third largest in the EU. Nearly 90% of Germany’s natural gas production takes place in the state of Lower Saxony. In 2002 Germany imported 2.4 trillion cubic feet of natural gas, or 75% of its requirements. The most important source of natural gas imports is Russia, with a 40.8% share, followed by Norway at 31.5%, and the Netherlands at 22.3%.
Energy
In 2002 Germany was the world’s fifth largest consumer of energy, and two-thirds of its primary energy was imported. In the same year, Germany was Europe’s largest consumer of electricity; electricity consumption that year totalled 512.9 billion kilowatt-hours.
Government policy emphasizes conservation and the development of renewable energy sources, such as solar, wind, biomass, hydro, and geothermal. As a result of energy-saving measures, energy efficiency (the amount of energy required to produce a unit of gross domestic product) has been improving since the beginning of the 1970s. The government has set the goal of meeting half the country’s energy demands from renewable sources by 2050. In 2000 the government and the German nuclear power industry agreed to phase out all nuclear power plants by 2021. However, renewables currently play a more modest role in energy consumption. In 2002 energy consumption was met by the following sources: oil (40%), coal (23%), natural gas (22%), nuclear (11%), hydro (2%), and other renewables (2%).
