The German economy is the fifth largest in the world and accounts for one-fifth of the European Union’s GDP. Germany is the United States' largest European trading partner and the sixth largest market for U.S. exports. Germany’s "social market" economy largely follows market principles, but with a considerable degree of government regulation and wide-ranging social welfare programs.
Germany is the largest consumer market in the European Union with a population of 82.4 million. 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. 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.
As of April 2019, the German government and economic forecasters expect between 0.5% - 0.8% GDP growth for 2019. However, all forecasters expect a rebound of the German economy in the second half of 2019 and up to 1.5% GDP growth in 2020, a number which many analysts consider Germany’s long-term growth potential (c. 1.5%/year). Demand has begun to shift from exports to consumption and investment, which are projected to remain the main driving force for growth in the near-term. Despite budget surpluses and strong corporate profitability, investment (other than construction) remains somewhat subdued.
Employment in Germany has continued to rise for the thirteenth consecutive year and reached an all-time high of 44.8 million in 2018, an increase of 562,000 (or 1.3%) from 2017—the highest level since German reunification in October 1990.
Unemployment dropped by half since its peak in 2005, and in 2018 reached the lowest average annual value in almost three decades. The number of unemployed stood at 2.34 million in 2018, down 193,000 from 2017, with an average unemployment rate of 5.2% (down 0.5 percentage points compared to 2018), according to official government statistics. Using internationally comparable data from the European Union’s statistical office Eurostat, Germany had an average annual unemployment rate of 3.4 percent in 2018, the second lowest rate in the European Union (EU). Germany’s national youth unemployment rate was at 6.2 percent in 2018 - the lowest in the EU.
Demographic changes and resulting labor bottlenecks, regulation of the labor market, and higher energy prices due to the phase-out of nuclear energy in favor of renewable sources (“Energy Transition”) are seen as factors that could dampen competitiveness. Experts also fear that international trade tensions and Brexit might substantially hurt the export-oriented German economy. Despite these fears, no economic institute currently foresees stagnation or true recession and many actually view growth rates of around 1.5% rather as “a return to normal” after an interim boom.
German policy poses relatively few formal barriers to U.S. trade or investment, apart from barriers associated with EU law and regulations. Germany has pressed the EU Commission to reduce regulatory burdens and promote innovation to increase EU member states’ competitiveness. Germany’s acceptance of the EU’s Common Agricultural Policy and German restrictions on biotech agricultural products pose obstacles for key U.S. products. While not overtly discriminatory, government regulation by virtue of its complexity may offer a degree of protection to established local suppliers. Zealous application of safety and environmental standards can complicate access to the market for U.S. products. American companies interested in exporting to Germany should make sure they know which standards apply to their product and obtain timely testing and certification. Compliance with German standards is especially relevant to U.S. exporters, as EU-wide standards are often based on existing German standards.
For U.S. companies, the German market - the largest in the EU - continues to be attractive in numerous sectors and remains an important element of any comprehensive export strategy to Europe. While U.S. investors must reckon with a relatively higher cost of doing business in Germany, they can count on high levels of productivity, a highly skilled labor force, quality engineering, good infrastructure and a location in the center of Europe.
The most successful market entrants are those that offer innovative products featuring high quality and modern styling. Germans are responsive to innovative high-tech U.S. products, such as computers, computer software, electronic components, health care and medical devices, synthetic materials and automotive technology. While Germany possesses an above-average Internet penetration rate within the EU for private households, high-speed internet access for business is only average (although expanding such access is a priority of the current government). Multi-media, high-tech and service areas offer great potential. Certain agricultural products also represent good export prospects for U.S. producers. In many cases, price is not the overriding factor for German buyers, but instead quality and reliability.
The German market is decentralized and diverse, with interests and tastes differing from one German region to another. Successful market strategies take into account regional differences as part of a strong national market presence. Experienced representation is a major asset to any market strategy, given that the primary competitors for most American products are domestic firms with established presences. U.S. firms can overcome such stiff competition by offering high-quality products and services at competitive prices, and locally based after-sales support. For investors, Germany’s relatively high marginal tax rates and complicated tax laws may constitute an obstacle, although deductions, allowances and write-offs help to move effective tax rates to internationally competitive levels.
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