Invest in Germany The Economic Powerhouse of Europe

An investment in Germany is often the best way for someone to enter the European market.

Germany has the leading economy in Europe and is the most highly industrialized country in Europe. The Gross Domestic Product (GDP) for Germany was worth 3,399 trillion in U.S. dollars in 2012. It represents 5.48% of the world economy. Germany accounts for more than half of the European Union’s (EU) international trade. It has become the economic superstar of Europe.

Exports and services make up 52% of Germany’s GDP. 69% of German exports are shipped to other European countries with 58.2% delivered to other member states of the European Union countries.

Within the EU, Germany’s most important trading partner is France with 9.5% of total exports. Exports to Britain (U.K.) amount to 6.6% of the total and 7.9% to the United States.

Much of Germany’s exports are focused on industrially produced goods and services. Internationally German chemicals, vehicles, precision tools and equipment, capital goods and engineering products are highly valued. In Germany ¼ of the national income is earned from exports and over 20% of all jobs are part of the export market either directly or indirectly.

As an industrial power Germany ranks 4^th in the world. This would be after the United States, China, Japan respectively. Its citizens are the 18^th richest in the world according to GDP per capita (PPP) at $39,028.39.

Germany would post a record foreign trade surplus in 2013 at 198.9 billion Euros (272.63 billion dollars). The 2012 surplus amounted to 189.8 Euros (260.16 billion dollars). The second highest record was 195.3 billion Euros (267.70 billion dollars) which was in 2007 before the world recession in 2008 and 2009.

In 2012 Germany would rank 3^rd in the world for its value of exports at 1.46 trillion dollars. The United States comes in at number 2 with 1.564 trillion dollars and China at 2.057 trillion dollars.

Germany’s adjusted unemployment rate stood at 5.1% at the end of 2013. This is the lowest level in 30 years. Youth unemployment fell slightly by 0.1% to 7.4%. At the height of the world recession of 2008-09 German unemployment peaked at 7.9% A comparison can be made with Spain where youth unemployment now stands at 50.5%.

This was because many German firms made the decision to keep workers hired during the business downtown. This was rather than lose skilled employees that would then have to be rehired once the economy started growing again. It was a gamble that paid off and saved many companies money but not having to retrain new workers.

The German experiment with more American style standards of production and business was one explanation for the importation of the guest workers in the 1960’s and 1970’s. The American model of deregulation and maximizing share value as well as a more service oriented economy has been largely abandoned by the Germans in the 21^st century. They are going back to a much earlier model.

At the end of 2013 the annual German inflation rate stood at 1.4%. It would slow further in January of 2014 posting in at 1.3 and is due to drop further.

Germany’s primary exports consist of motor vehicles, machinery, chemicals, computer and electronic equipment, rubber and plastics, textiles, agricultural goods, food stuffs, transport equipment, metals, pharmaceuticals, and electrical equipment.

Major imports consist of agricultural products, food stuffs, pharmaceuticals, oil and gas, electric equipment, metals, chemicals, vehicles, machinery and data processing equipment.

Total population stands at 81.917 million. Germany’s population is actually declining. It is expected to decline from 15% to 21% by 2060 leaving Germany with 65 to 70 million inhabitants by 2060.

At present the population of those 65 and older comprise 20% of the population. In 2030 that will rise to 29% and 34% in 2060. That would be 1 in 3 citizens. This will be a major problem for keeping Germany’s workforce vibrant and productive. Germany will need more immigration. Highly skilled individuals and professionals as well as entrepreneurs and businessmen might want to consider a relocation to this spirited and productive nation.

Given the soon to be declining workforce it was probably unwise for Angela Merkel, (the present chancellor of Germany) to agree with the junior partner in her present political coalition (the SPD) to lower retirement age from 67 to 63. Of course this would only be for citizens that had worked for at least 45 years.

Economic growth in Germany as elsewhere will be driven by increases in worker numbers, efficiency or both. This process known as worker productivity only increased 1 % a year from 1995 and 2005. It slipped even further in the years 2005 to 2012 ebbing to 0.5%. With declining numbers the issue of productiveness will become critical. This will definitely be an area of investment for entrepreneurs.

However, one could argue that increases in productivity has slowed because of the German success with unemployment. Regardless, the reliance on older workers will become increasingly important in the years ahead. Keeping these individuals in the workforce will be another area of investment.

Criticism over the current account balances has been mounting in 2012 and 2013. It is felt that Germany is generating a huge surplus at the expense of other member nations of the EU. In 2012 a warning was actually issued by the European Commission when the current account had reached 7.013% surplus of the country’s GDP. By EU member standards it is not to exceed 6.0% on a regular basis.

Part of the surplus is a result of Germany depressing wage growth in recent years which has allowed German products to remain competitive on European and world markets. Whether this will be sustainable in the future is still open for debate. It does allow international investors to consider German wages reasonable by European standards.

For now the system of centralized wage bargaining will remain. This allows German employers more flexibility on wages and work hours but offers hires more job security in return. It also permitted the manufacturing share of German GDP to be maintained and even grow in the 21^st century. This is in major contrast to most other advanced economies in the world.

The new elected conservative government of Germany (as a price to keep the coalition with the SPD in place) has promised that wages will be allowed to increase somewhat which will put more pressure on the competitiveness of German goods. This has made some businesses and investors a bit apprehensive.

The current account surplus is now larger than China’s as a share of GDP. It has become a pride issue for the Germans to maintain this status. It is felt by many observers that some of this surplus should be reduced by increasing domestic consumer demand. There is also calls for the Germans to invest more of this money in their infrastructure. From a strictly business sense the latter suggestion may prove a good idea in the long run thus keeping Germany efficient as the 21^st century wears on.

However, it most be pointed out that as the largest and most important economy in Europe Germany will be indispensable in solving the debt crisis in the Euro zone. This of course will be helpful to the Germans as well because many of the country’s best customers reside in the EU.

Germany has also been criticized for its insistence on austerity to solve the financial and economic problems that exist in the European Union. This is the price the Germans demand to stay in the Euro zone. Plus they are the ones signing off on the bail out checks for the countries in the European Union that are in trouble. It has made Chancellor Merkel the most powerful leader in Europe especially since she just won a third re-election in the fall of 2013.

Germany maintains a AAA credit rating, it can borrow money for practically nothing. It’s federal budget is basically in balance (a surplus is already expected in 2016) a rare set of circumstances given the present world situation with most nations drowning in debt. The present government of Angela Merkel under the conservatives has also insisted that the Lander budgets (state budgets) be brought into total balance as well by 2020.

Germany is also now planning to pay down its national debt to prepare the nation for more turbulent times. As a share of GDP it is already declining from over 80% to the 70’s%. The peak was reached in 2010 at 82.50%. Lower and lower payments for the interest on remaining debt as it is paid down will free the Germans to be able to invest more money in research, development and infrastructure. It will also allow more money for education and training of present and future workers. Of course many modern day economists wonder why the Germans insist on balancing their governmental budgets when they maintain such large trade surpluses? The future may yet show the wisdom of this as the international economic and financial situation becomes more precarious in the years ahead. The national debt at the time of this writing stands at 2,140,951 trillion Euros which is just under 3 trillion in U.S. dollars.

The dual system of vocational training which has thrived in Germany is one of the reasons that are touted for the nation’s economic success in the modern era. This model combines classroom instruction alongside work experience. It stresses an apprentice system that makes the German workforce highly skilled as a future workers chooses a vocation from 1 of 344 trades. Half of all German high school students enter this system.

As part of the dual system state and local governments provide the schools. Courses are set up by employer federations and unions. Industry leaders and chambers of commerce provide the exams and testing. Therefore, graduates are ready for immediate employment in the industries of their choice.

Another framework for success for the Germans is the “Mittelstand” firms. These are medium and small sized companies that are highly specialized and are often geared toward the export market. They are often family owned and many of them have been in business for generations. They are mostly run efficiently with an emphasis on long term growth not short term profits. Quality and service are the mainstays of these enterprises. There is often a long history between these companies and their suppliers and customers.

Germany has become famous for some of its international company trademarks. The extensive list here would include: Adidas, Allianz, Aldi, Audi, BASF, Bauhaus,Bayer, Bechtle, Bertelsmann,(Random House) Beck’s Brewery, Birkenstock, Bosch, BMW, Commerzbank, Continental,Daimler AG (Mercedes-Benz),Deutsch Bank, T-Mobile,Diezel, Dresdner Bank, Getrag, Grundig, Haribo, Henckels, Lufthansa, Loewe, Lowenbrau, Meissen Porcelain, Merck, Montblanc, Opel, Porsche, Rheinmetall, Siemens, SkySails Software AG, SolarWorld, Steinway & Sons, Telefunken, ThyssenKrupp, United Internet and Volkswagen Group. These companies as a whole emphasize quality of design and performance.

It has also allowed clusters of industries both horizontal and vertical to come into existence. Where one company’s expertise has influenced another company to relocate and specialize as a result. For example, a company skilled in precision tools would influence a company that needs those tools to move to the region. Of 100 such clusters identified in Europe at least 30 of them are to be found in Germany.

Some economists are predicting that by 2030 Germany will become the richest large country in the world in terms of income per citizen.

With a export-driven growing economy, skilled workforce and stable government Germany has sufficient modern infrastructure to support any business and investment venture. Another major advantage is that the “banker” of Europe has its financial house in order. For these reasons I highly recommend that investors take a look at this affluent and culturally rich nation.