The German economy is the fourth largest in the world and accounted for one quarter (24.7 percent) of the European Union’s GDP in 2021. Germany is also the United States’ largest European trading partner and the sixth-largest market for U.S. exports. Its “social market” economy largely follows market principles, but with a considerable degree of government regulation and wide-ranging social welfare programs.

With a population of 83.2 million, Germany is the largest consumer market in the European Union. The significance of the German marketplace goes well beyond its borders. An enormous volume of trade in Germany is conducted at some of the world’s largest trade events, such as Medica, Hannover Fair, Automechanika, and the ITB Tourism Show.  After being canceled or rescheduled in 2020 and 2021 due to the COVID-19 pandemic, many of these trade fairs are returning as predominantly in-person events in 2022.  The volume of trade, number of consumers, and Germany’s geographic location at the center of the European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies.

In 2020 and 2021 Germany weathered the COVID-19 pandemic’s devastating economic effects better than any of its EU neighbors thanks in large part to its fiscal space, a large current account surplus (USD 278 billion [EUR 232 billion] in 2020 and USD 300 billion [EUR 266 billion] in 2021), generous economic stimulus packages, and flexible short-term work schemes that kept unemployment at only 5.7 percent in summer 2021.  An easing of pandemic restrictions and rebound of the services sector led to 2.8 percent real GDP growth in 2021, but the knock-on effects of the Russian invasion of Ukraine have caused a downward revision in forecasts for 2022.  The IMF expects only 2.1 percent real GDP growth in 2022, a 1.7 percentage point downgrade from its previous forecasts in January 2022.

Demographic changes and resulting labor shortages, supply chain bottlenecks, burdensome debt, especially on the municipal level, high inflation, and higher energy prices due to the war in Ukraine are factors that could dampen near-term competitiveness.