Economy of Germany

The economy of Germany is a highly developed social market economy.  It has the largest national economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP (PPP). In 2017, the country accounted for 28% of the euro area economy according to the IMF.

The service sector contributes around 70% of the total GDP, industry 29.1%, and agriculture 0.9%. Exports account for 41% of national output. The top 10 exports of Germany are vehicles, machinery, chemical goods, electronic products, electrical equipment, pharmaceuticals, transport equipment, basic metals, food products, and rubber and plastics. The economy of Germany is the largest manufacturing economy in Europe and it is less likely to be affected by the financial downturn and conduct applied research with practical industrial value and sees itself as a bridge between the latest university insights and industry-specific product and process improvements, and by generating a great deal of knowledge in its own laboratories as well.

The economy of Germany is the largest manufacturing economy in Europe

Germany is rich in timber, lignite, potash and salt. Some minor sources of natural gas are being exploited in the state of Lower Saxony. Until reunification, the German Democratic Republic mined for uranium in the Ore Mountains (see also: SAG/SDAG Wismut). Energy in Germany is sourced predominantly by fossil fuels (30%), followed by wind second, then nuclear power, gas, solar, biomass (wood and biofuels) and hydro. Germany is the first major industrialized nation to commit to the renewable energy transition called Energiewende. Germany is the leading producer of wind turbines in the world. Renewables produced 46% of electricity consumed in Germany (as of 2019). 99 percent of all German companies belong to the German “Mittelstand,” small and medium-sized enterprises, which are mostly family-owned. Of the world’s 2000 largest publicly listed companies measured by revenue, the Fortune Global 2000, 53 are headquartered in Germany, with the Top 10 being Allianz, Daimler, Volkswagen, Siemens, BMW, Deutsche Telekom, Bayer, BASF, Munich Re and SAP.

Germany Economic Indicators

Germany GDP Growth Rate

Germany is the fifth largest economy in the world and the largest within the Euro Area. Germany is the second largest exporter in the world and exports account for more than one-third of national output. As such, the export of high added value products has been the main driver of growth in recent years. Composition of the GDP on the expenditure side: household consumption (55 percent), gross capital formation (20 percent, of which 10 percent in construction, 6 percent in machinery and equipment and 4 percent in other products) and government expenditure (19 percent). Exports of goods and services account for 46 percent of GDP while imports for 39 percent, adding 7 percent to total GDP.

Germany Interest Rate

The benchmark interest rate in Germany is set by the European Central Bank.

Germany Inflation Rate

In Germany, the most important categories in the consumer price index are Housing, water, electricity, gas & other fuels (32 percent of the total weight), Transport (13 percent), Recreation, entertainment & culture (11 percent) and Food & non-alcoholic beverages (10 percent). The index also includes Miscellaneous goods & services (7 percent), Furniture, lighting equipment, appliances & other household equipment (5 percent), Restaurant & accommodation services (5 percent), Health (5 percent) and Clothing & footwear (5 percent). The remaining 7 percent of the index is composed by Alcoholic beverages & tobacco, Communication and Education.

Germany Unemployment Rate

In Germany, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force.

Germany Government Dept to GDP

Germany recorded a government debt equivalent to 59.80 percent of the country’s Gross Domestic Product in 2019. Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.

Germany Balance of Trade

Germany runs regular trade surpluses since 1952, primarily due to strong exports of vehicles and other machinery. In 2017, the largest trade surpluses were recorded with the US, the UK, France, Austria, Spain, Sweden and the UAE; while the biggest trade deficits were recorded with China, Vietnam, Norway, Russia, the Netherlands, Ireland and Czech Republic.

Germany Currency Euro

The euro is the official currency of Germany, which is a member of the European Union. The Euro Area refers to a currency union among the European Union member states that have adopted the euro as their sole official currency. In Germany, interest rate decisions are taken by the Governing Council of the European Central Bank.

Germany Stock Market

The DAX Index is the benchmark index for the German equity market. It tracks the performance of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange, which represent around 80 percent of the market capitalization listed in Germany. The Index is free floating and has a base value of 1000 as of December 31, 1987.

Germany Ease of Doing Business

Germany is ranked 22 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Germany improved to 22 in 2019 from 24 in 2018. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operationstronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.

Germany Business Confidence

The Ifo Business Climate indicator for Germany dropped to 92.7 in October 2020, from a seven-month high of 93.2 in the previous month and slightly below market expectations of 93.0. Companies were considerably more skeptical regarding developments over the coming months following the imposition of tougher restriction measures to curb the spread of the COVID-19 pandemic. In contrast, firms assessed their current situation as better than in the previous month.
In Germany, the IFO Business Climate Index measures entrepreneurs’ sentiment about current business situation and their expectations for the next 6 months. The survey is made by phone and covers 9,000 firms in manufacturing, the service sector, trade and construction. The Business Climate Balance is constructed as the difference between the percentage share of executives that are optimistic and the share that are pessimistic. This balance can take values between -100 (all responding firms assess their situation as poor and expect business to deteriorate) and +100 (all responding firms assessed their situation as good and expect an improvement in their business). For the calculation of the IFO Business Climate Index, the Balance is normalized to the average of a base year (currently 2015).

Germany Consumer Confidence

The GfK Consumer Climate Indicator in Germany fell to -3.1 heading into November 2020 from a revised -1.7 in the prior month and missing market consensus of -2.8. This was the weakest reading since July, amid fears over another lockdown following a resurgence of COVID-19 cases in the country. The gauge for economic outlook tumbled 17 points to 7.1, the income expectations sub-index fell 6.3 points to 9.8, and the willingness to buy indicator dropped 1.4 points to 37. “Consumers apparently assume that the much more active infection process in Germany will slow down the previously hoped for rapid recovery of the German economy,” said GfK consumer expert Rolf Buerkl.

The GfK Consumer Climate Indicator is based on a survey of 2000 individuals age 14 and above. The questionnaire focuses on income expectations, buying propensity and savings. The components of the indicator are calculated as the difference between positive and negative answers to the questions asked. Their value can vary between minus 100 and plus 100 points with 0 representing the long term average.

Germany Bank Lending Rate

Bank Lending Rate in Germany increased to 2 percent in September from 1.78 percent in August of 2020.

In Germany, the bank lending rate is the average rate of interest charged on loans by commercial banks to private individuals and companies.

Germany Corruption Rank

Germany is the 9 least corrupt nation out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International. The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s rank indicates its position relative to the other countries and territories in the index.

Germany Credit Rating

Standard & Poor’s credit rating for Germany stands at AAA with stable outlook. Moody’s credit rating for Germany was last set at Aaa with stable outlook. Fitch’s credit rating for Germany was last reported at AAA with stable outlook. DBRS’s credit rating for Germany is AAA with stable outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Germany thus having a big impact on the country’s borrowing costs. This page includes the government debt credit rating for Germany as reported by major credit rating agencies.

Taxation in Germany

At the federal level, the government receives tax revenues from residents in the form of individual income tax, property sales taxes, and capital gains. The amount of federal tax liability may be reduced by various deductions, and mitigated by various allowances for children. Some non-residents are liable in Germany if they have certain types of income there. Generally, public and private corporations are liable for taxes in Germany, with certain exemptions such as charitable foundations and religious institutions. Products and services generated in Germany are subject to value-added tax (VAT) under EU rules, with certain exemptions. Other types of tax revenue include real property transfers, inheritance and gift taxes, capital gains, aviation, and motor vehicle taxes.

Income tax

The rate of income tax in Germany ranges from 0% to 45%. The German income tax is a progressive tax, which means that the average tax rate (i.e., the ratio of tax and taxable income) increases monotonically with increasing taxable income. Moreover, the German taxation system warrants that an increase in taxable income never results in a decrease of the net income after taxation. The latter property is due to the fact that the marginal tax rate (i.e., the tax paid on one euro additional taxable income) is always below 100%.

Corporation tax

Corporation tax is charged first and foremost on corporate enterprises, in particular public and private limited companies, as well as other corporations such as e.g. cooperatives, associations and foundations. Sole proprietorships and partnerships are not subject to corporation tax: profits earned by these set-ups are attributed to their individual partners and then taxed in the context of their personal income tax bills. As of 1 January 2008, Germany’s corporation tax rate is 15%. Counting both the solidarity surcharge (5.5% of corporation tax) and trade tax (averaging 14% as of 2008), tax on corporations in Germany is just below 30%.

Dividends

When dividends are paid to an individual person, capital yield tax at a rate of 25% is charged. Since 1 January 2009, this tax is final for individuals who are residents of Germany. Solidarity surcharge is also imposed on capital yields tax.

When dividends are paid to an enterprise with full corporation tax liability, the recipient business is largely exempted from paying tax on these revenues. In its tax assessment, merely 5% of the dividends are added to profits as non-deductible operating expenses. The same applies if a taxable corporate enterprise sells shares in another company.

Deducting tax from dividends paid by a subsidiary with full tax liability to a foreign parent domiciled in the EU is waived on certain conditions, e.g., the parent company has to have a direct holding in the subsidiary of at least 15%.

Value-added tax (VAT)

The rate of value-added tax rate generally in force in Germany is 19%. A reduced tax rate of 7% applies e.g. on sales of certain foods, books and magazines and transports. Due to COVID-19 reason, government accepted a lowering from 1st of July 2020 until 31st of December 2020 for the rates. Thus standard rate currently lowered to 16% and reduced rate become 5%.

Corporate tax	Income tax	VAT or sales tax	Social Security Rate for Companies	Social Security Rate for Employees
30%	45%	16%	19,88%	20,13%

How to Start a Business in Germany

text here