|The German economy--the fifth-largest in the world in purchasing power
parity (PPP) terms and Europe's largest--is a leading exporter of machinery,
vehicles, chemicals, and household equipment and benefits from a highly
skilled labor force. Like its Western European neighbors, Germany faces
significant demographic challenges to sustained long-term growth. Low
fertility rates and declining net immigration are increasing pressure on the
country's social welfare system and have compelled the government to
undertake structural reforms. The modernization and integration of the
eastern German economy--where unemployment can exceed 20% in some
municipalities--continues to be a costly long-term process, with total
transfers from west to east amounting to roughly $3 trillion so far.
GDP contracted by nearly 5% in 2009, which was the steepest dropoff in output since World War II. The turnaround has been swift: Germany’s export-dependent economy is expected to grow by 3.5% in 2010 and a further 2% in 2011, with exports to emerging markets playing an increasingly important role. The German labor market also showed a strong performance in 2010, with the unemployment rate dropping to 7.5%, its lowest level in 17 years. Economists attribute the decrease in unemployment to the extensive use of government-sponsored "short-time" (Kurzarbeit) work programs, as well as to structural reforms implemented under the government of former Chancellor Gerhard Schroeder. Thanks to stronger-than-expected tax revenues, Germany’s deficit will reach €50 billion (U.S. $68.5 billion) in 2010, or roughly 4% of GDP, significantly less than previously forecast. The European Union (EU) has given Germany until 2013 to get its consolidated budget deficit below 3% of GDP, and a new constitutional amendment limits the federal government to structural deficits of no more than 0.35% of GDP per annum as of 2016. The government’s 4-year fiscal consolidation program worth approximately €80 billion (U.S. $109.6 billion) is intended to meet both targets. Positive economic trends make it likely that Germany may achieve its goals ahead of schedule.
GDP:$2.951 trillion (2010 est.)
SOURCES: The World Factbook, U.S. Department of State
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