The German economy is the world's fourth largest and, after the enlargement of the EU, accounts for more than one-fifth of European Union 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 free-market principles, but with a considerable degree of government regulation and generous social welfare programs.
Germany is the largest consumer market in the European Union with a population of 81.1 million. However, the significance of the German marketplace goes well beyond its borders. An enormous volume of trade is conducted in Germany at some of the world’s largest trade events, such as MEDICA, Hannover Fair, Automechanika, and the ITB Tourism Show. The volume of trade, number of consumers, and Germany’s geographic location at the center of a 28-member European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies.
The German economy has improved markedly in recent years. The economy took a serious hit during the economic crisis. Because of the country’s strong export dependency, GDP declined by more than 5 per cent in 2009. However, the recovery was equally strong, resulting in a V-shaped recovery as pre-crisis real GDP was reached again in the second quarter of 2011. The German government expects real GDP to grow by 1.8% in 2015 and also in 2016, i.e. above its current potential rate of growth of 1.5%.
The labor market remained resilient during the economic and financial crisis and continued to grow stronger in 2014. A comprehensive set of labor and social reforms, termed “Agenda 2010,” introduced between 2003-2005 contributed to overcoming the structural weaknesses of the German welfare state and labor market, resulting in today’s strong employment growth and low unemployment.
As a result of the positive economic development, employment in Germany has continued to rise for the last nine consecutive years and reached an all-time high of 42.7 million in 2014, an increase of 371,000 from 2013. Particularly women and the elderly have benefitted from the positive trends in the labor market.
Simultaneously, unemployment has fallen by almost two million since 2005, reached the lowest level since German reunification (1990) in 2014 and is still receding in 2015. The global economic and financial crises increased unemployment only temporarily; the loss of about 160,000 jobs in 2008 were offset in less than two years. In 2014,fewer than 2.9 million people were unemployed, and the jobless rate was at 6.7 percent, according to official national data from the German Federal Employment Agency (using the internationally comparable concept of the International Labor Organization (ILO), the German unemployment rate stood at 5 percent). Germany has the lowest unemployment rate (7.7 percent in 2014) among all other 28 European Union member states (European Union average: 22.2 percent, EUROSTAT).
German businesses and economists, however, expect that the recent reversal of past pension reforms and the introduction of a minimum wage, along with higher energy prices due to the “Energiewende” will seriously impair Germany’s competitiveness over the next five years.
Germany presents few formal barriers to U.S. trade or investment. Germany’s acceptance of the EU’s Common Agricultural Policy and German restrictions on biotech agricultural products represent obstacles for some U.S. goods. Germany has pressed the EU Commission to reduce regulatory burdens and promote innovation to increase EU member states’ competitiveness. The Merkel government has talked about the need for regulatory reform in Germany, still, Germany's regulations and bureaucratic procedures can be very complex. While not directly discriminatory, government regulation by virtue of its complexity may offer a degree of protection to established local suppliers. Safety or environmental standards, not inherently discriminatory but sometimes zealously applied, 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. German standards are especially relevant to U.S. exporters because, 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, a first-class 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 the innovation and high technology evident in U.S. products, such as computers, computer software, electronic components, health care and medical devices, synthetic materials, and automotive technology. Germany possesses one of the highest Internet access rates in the EU and new products in the multi-media, high-tech and service areas offer great potential as increasing numbers of Germans join the Internet generation. Certain agricultural products also represent good export prospects for U.S. producers. Price is not necessarily the determining factor for the German buyer, given the German market’s demand for quality.
The German market is decentralized and diverse, with interests and tastes differing from one German state 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.