Opinion: Good News for Germany′s Economy | Business| Economy and finance news from a German perspective | DW | 27.12.2006
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Opinion: Good News for Germany's Economy

Although sales tax increases at the beginning of 2007 are likely to temporarily dampen the German economy, the economic outlook for next year is extremely positive, says DW-RADIO's Karl Zawadzky.


For many years, Germany's economy was sluggish compared to other European Union countries. There was even talk -- some malicious, some concerned -- of "the German malaise."

Those times have passed. Germany is currently experiencing the biggest economic growth since its reunification in 1991 and there is no other EU country whose economy is growing as quickly.

Economic growth for 2006 is currently estimated at 2.5 percent, but it would come as no surprise if the Federal Statistical Office's official calculations came up with a larger figure. This economic upturn is expected to continue in 2007 and into the future.

Karl Zawadzky

The increase in employment is a particularly important factor here. In November, the number of unemployed sank to below the four million mark and there are two main reasons for this.

Not only are the unemployed receiving more support in their hunt for a job, they are also being pushed harder to look for work. In addition, business and industry had made such sweeping staff cuts in the past few years, that they now have to reemploy staff at an earlier stage in the economic upswing compared to the past few years.

This in turn, has strengthened private consumption, removed some of the pressure off the state coffers, and reinvigorated business confidence.

The German economy is stronger than ever before. Industry has streamlined production, optimized business process, and modernized products and product systems.

Even many of the mid-sized companies are now active in the global market. They have not only established offices outside of Germany, but also moved manufacturing plants to foreign soil. This means an increasing percentage of German exports are being manufactured in countries with lower production costs.

Germany's economic growth has been helped by the union's moderate wage policies. Employment costs in Germany have grown by less than half compared to other EU countries. This has caused the cost of unit production to decrease, making German products more competitive in the international market.

There is no doubt that Germany will be the world's biggest exporting nation in 2006, as it has been since 2003. The current economic downturn in the United State will not have a significant affect on Germany's economic growth, because this will be offset by the dynamism of other markets, such as eastern Europe, Russia, China, India and the Middle East.

The strong euro also won't have an adverse affect. One the one hand, the financial sector offers enough alternatives to secure against currency fluctuations and on the other hands, an expensive euro makes imports cheaper and helps with stabilizing prices.

German firms aren't just achieving record turnovers, but also record profits. The economy is robust enough to deal with the dip in private consumption expected at the beginning of next year when the 3 percent increase in sales tax is introduced.

All of this means Germany has an extremely positive economic outlook for 2007.

Karl Zawadzky is a business editor for DW-RADIO (kh).

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