ESCUELA POLITCNICA NACIONAL

FACULTAD DE CIENCIAS ADMINISTRATIVAS

MASTER OF BUSINESS ADMINISTRATION

ECONOMY

GERMAN ECONOMIC SITUATION

GUEVARA MORALES TRAJANO SAL

MUOZ PARREO GABRIELA ESTEFANA

TUTOR: ING. NAPOLEN SNCHEZ, MSc.

July 23, 2017

 i

TABLE OF CONTENTS

ABSTRACT ......................................................................................................... ii

INTRODUCTION ................................................................................................ 1

1. LITERATURE REVIEW ......................................................................... 2

1.1. CURRENT GERMAN ECONOMY .................................................. 2

1.2. MAIN ECONOMIC SECTORS ........................................................ 3

1.3. GERMAN MODEL OF ECONOMY ................................................. 3

1.4. ECONOMIC POLICY ...................................................................... 4

2. CONCLUSIONS AND RECOMMENDATIONS ..................................... 5

3. REFERENCES ...................................................................................... 6

INDEX OF TABLES

Table 1 ................................................................................................................ 2
 ii

ABSTRACT

This essay aims to review German economic situation, first an overview about

the history of German economic and its recovery after the First and Second World War

and the crisis in 2008. Then, a review about the actually economy, the model of

economy that Germany apply and the economy policies. Germany was affected for the

First and Second World War, but its economy improved thanks the economic model

that Germany used based in social economy and with a strong participation in the export

of manufacturing products. That German economy depends of the export the

international market and economy affected its economy.

 1

INTRODUCTION

Germany faced three big crises that affect its economy the first was the First

World War that made German economy unstable and with debt, second was the Second

World War where Germany was divided in two with separate and different politics, and

finally the crisis in 2008 where Germany was called the sick man of Europe (Storm,

S. & Naastepad C., 2014).

After the war, Germany was devastated. Their industry and structures were

destroyed, their allies could not help them so they understood that the only ones who

could help them would be themselves. After the ended of the war, the Germans began to

rebuild their cities. In 1946 began to open fairs to use the artillery for industrial use,

they also had food problems and that is why they started the informal trade, where

people exchanged food for other services. Thanks to the Marshall Law, the economy

was booming so it was not long before the debt was paid. There was employment and

good wages, but this hegemony did not last for the 60`s, it construction of the Berlin

Wall and by the delays of the Bundesbank disappeared several industries. (Reina, 2014)

After the crisis in 2008 Germany was called the sick man of Europe, but now

Germany has the more rapidly growing and dominated by financial markets

coordination (Storm, S. & Naastepad C., 2014). Mercedes Benz among others, became

the German pillar to base, but by the crisis of 2008 its GDP fell with respect to other

years. As of 2011 Germany returned to be power and maintains the 4th place until

today. (Reina, 2014)

 2

1. LITERATURE REVIEW

1.1. CURRENT GERMAN ECONOMY

Germany is considered the 4th world power since its economy is one of the best

in Europe. In 2016, Germany's GDP growth in 1.7%, this was mainly impulse by

commerce. (Santander TradePortal, 2016)

The German unemployment rate is the lowest in history, with a figure of 5%.

Today, 43000000 people are employed. (Santander TradePortal, 2016)

The table below shows the status of the economic indicators for 2016.

Table 1 Economic Indicators

Indicators 2014 2015 2016 2017 (e) 2018 (e)

GDP (billions USD) 3 3 3e 3 3
GDP (Constant Prices, 1,6 1,5 1,8e 1,6 1,5
Annual % Change)
GDP per Capita 47 41 41e 41 42
(USD)
General Government 0,6 0,7 0,6 0,2 0,2
Balance (in % of GDP)
General Government 74,9 71,2 67,6 64,7 62
Gross Debt (in % of
GDP)
Inflation Rate (%) 0,8 0,1 0,4 2,0 1,7
Unemployment Rate 5,0 4,6 4,2 4,2 4,2
(% of the Labour
Force)
Current Account 282,88 280,27 294,34e 280,47 280
(billions USD)
Current Account (in 7,3 8,3 8,5e 8,2 8,0
% of GDP)

(Santander TradePortal, 2016)

The table 1 shows the current indicators of Germany, there is indicators from

2014 to an estimate of this year and the next year. It can be observed that indicators

such as inflation rate, unemployment, General Government Gross Debt, etc., decrease
 3

each year as of 2011. This implies that there is a good management by the government

in the decision making with respect to the economic area.

1.2. MAIN ECONOMIC SECTORS

Germany divides into 3 main economic sectors as shown below:

Agricultural sector:

o 1.3% of the population is engaged in this activity.

o Less than 1% of GDP contributes to this sector.

o Produce cereals, dairy products, etc.

Industrial sector:

o 30% GDP support.

o Specialized areas such as: mechanics, electronics, chemistry, etc.

Other Sectors:

o 69% of GDP

o Employs 70% of the population

o 3.6 Million SMEs

(Santander TradePortal, 2016)

1.3. GERMAN MODEL OF ECONOMY

The German model of economy is based in labor market reforms and market

mechanisms. The labor market reforms create strong price and makes that Germany a

competitive to export to oriented manufacturing sector. Another forms that Germany

became a potency in Europe is the technologic used in the manufactory. About the

export market, Germany has 18% of the total word exports, then France follow them

with 3.6% and Spain with 0.9% (Storm, S. & Naastepad C., 2014).
 4

The German economy is bases in three principles keys:

Maintaining many imports and exports.

A firm guarantee to price stability.

Government Europe vocation.

The economy is based in the export because this create new jobs and money enter to

the country. But, that the economy strongly depends of the export it made more

influence of the international economy (Funk, 2012).

The wages in Germany increased in manufacturing, in non-tradable and in the whole

economy. Germany makes these improvements by having a technological capabilities

that makes high productivity in the manufactory (Storm, S. & Naastepad C., 2014).

1.4. ECONOMIC POLICY

German legislation designed the competition policy to regulate the market and

prevent the abuse of dominate market. The government stablish some subsides to

improve the enterprise and export. The highly developed of the German economy is

based in the industrial policies and the competition law. The industrial policies include

the privation and regulation programs (Smith, 2003). The Government helped the firms

by financing part-time workers, this made easier to Germany faced the crisis and made

its economy more stable (Storm, S. & Naastepad C., 2014).

 5

2. CONCLUSIONS AND RECOMMENDATIONS

Germany is a world power for its productive diversification.

The competitive advantage of Germany is to be in a strategic place with countries like

France, etc., that surround it.

There is almost no unemployment for the millions of SMEs it owns.

In 2016 Inflation was 0.4%

The tough crisis that Germany experienced from 2008 to 2011.General Government

Gross Debt falls every year.

The South American countries should take Germany as an example to be first world.

Ecuador must buy national and boost the creation of SMEs.

 6

3. REFERENCES

Funk, L. (2012). The German economy during the financial and economic crisis since
2008/2009. Berlin: Print Compensated. Retrieved from
http://www.kas.de/wf/doc/kas_33244-1522-1-30.pdf?130109020811
Reina, W. (2014, Noviembre). Economa Alemana, Situacin Actual. Retrieved from
http://repository.unimilitar.edu.co/bitstream/10654/13102/2/Economia%20Alem
ana%2C%20situaci%C3%B3n%20actual.pdf
Santander TradePortal. (2016). Retrieved from
https://es.portal.santandertrade.com/analizar-mercados/alemania/politica-y-
economia?&actualiser_id_banque=oui&id_banque=0&memoriser_choix=memo
riser
Smith, E. (2003). German Economy. London and New York: Routledge.
Storm, S. & Naastepad C. (2014). Crisis and Recovery in the German Economy:.
Structural Change and Economic Dynamics, 11-24.
doi:doi.org/10.1016/j.strueco.2015.01.001