The German economy is the fourth-largest in the world and accounted for one quarter (24.7%) of the European Union’s GDP in 2019. Germany is also the United States’ largest European trading partner and the fifth-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, the Hannover Fair, Automechanika, and the ITB Tourism Show, although it should be noted that most trade fairs for 2020 have been canceled or rescheduled due to the COVID-19 pandemic. 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, Germany weathered the COVID-19 pandemic’s devastating economic effects better than any of its EU neighbors thanks in large part to its fiscal austerity, a record-breaking current account surplus (almost $300 billion in 2019), and its ability to implement flexible short-term work schemes that kept unemployment at only 4.5% in July 2020. The GDP drop of 10.1% in Q2 2020 was the sharpest decrease since 1970 and more than twice the drop during the 2008/2009 financial crisis.
Demographic changes and resulting labor bottlenecks, regulation of the labor market, and higher energy prices due to the phase-out of coal and nuclear energy in favor of renewable sources (“Energy Transition”) are factors that could dampen competitiveness. Experts also fear that international trade tensions and the COVID pandemic global economic impact might substantially hurt the export-oriented German economy.