Germany: A Robust Global Economy

On this page we present the salient features of the German Economy since the onset of the Great Recession in a global perspective, where the comparison is with the EU28 and the United States.

The first figures below show the path of Real GDP and its components since the recession. We have indexed all variables to the first quarter of 2008.

GDP and Main Aggregates

The Great Recession hit the German Economy very hard with a more than six percent decline in GDP and significant financial sector problems. The following graph plots the percentage change in Real GDP for Germany. What is remarkable about Germany and different from virtually all the other European economies is how quickly they rebounded from what was a significant decline.

For a time, growth in the German economy outpaced that in both the U.S. and its European neighbors. While economic growth quickly slowed between 2011 and 2013, it rebounded quickly and has subsequently tracked the rest of the EU quite closely.

Consumption in Germany was remarkably consistent throughout the decline, though has grown slowly thereafter when compared to the U.S.

Capital formation has faired about as well as the rest of the EU. While the level of fixed capital formation is much higher than the EU relative to 2008Q1, growth for both have been about the same on average since 2013. This suggests that the level difference is a product of the quick German recovery.

German exports collapsed sharply but now have recovered as well, tracking the rest of the EU closely. Since 2014Q2, growth in German exports has outpaced that for the U.S. A similar story for German imports emerges as with capital formation. Imports recovered much faster than the rest of the EU, but both have since grown at the same pace.

 

The Labor Market

The German labor market has been incredibly robust. In fact, it is difficult to spot the Great Recession when focusing on its labor market.

The German economy has seen a steady decline in its unemployment rate since 2008, with only a minor uptick of less than 1 percentage point between 2008Q4 and 2009Q3. As shown below, the lack of a response to the downturn does not seem to be driven by changes in the labor force participation rate. Here, we use the labor force participation rate for individuals 20-64 years of age.

Whereas the U.S. labor force participation rate has declined from 66% to around 63% during its recovery, Germany’s has increased by about 2 percentage points. While not quite as high as the increase in the rest of the EU, the German labor market is quite impressive with a size-able fraction of its population garnering employment:

 

The Role of Government

Germany has preached a doctrine of austerity to other European economies with significant fiscal problems. The figure below shows the fiscal response measured as a percentage of GDP.

While government debt increased sharply following the Recession, it has subsequently declined. Moreover, government consumption patterns changed very little.

Thus, we read the increase in government debt as a percentage of GDP as a by-product of Germany’s decline in GDP rather than a change in long-term fiscal policy.

Indeed, Germany’s lending behavior changed temporarily and quickly returned to modest levels of borrowing. Since 2014Q1, Germany has become a net lender on average.

Leave a Reply

Your email address will not be published. Required fields are marked *