CM September 2020

COUNTRY FOCUS
Germany is still
the engine driving
Europe’s economy.
German.Bite
AUTHOR – Adam Bernstein
ASK anyone on the Clapham
omnibus what they know
of German history and
it’s a fair bet that they’ll
offer comment about two
world wars, Adolf Hitler,
the Berlin Wall, BMW and Mercedes,
Oktoberfest and England’s 1966 win over
West Germany.
While all of these are notable, Germany
is much more than that and has a history
that goes back as least as far as Julius
Caesar where Germania – a term that
Hitler resurrected for the Third Reich –
was used to distinguish the region from
Gaul which is now modern France.
Regional dukes, princes and bishops,
Martin Luther, the Holy Roman Empire
and Bismarck’s unification of the
German states – followed by an industrial
revolution – put Germany in the position
of being, by 1900, the dominant European
power.
Of course, the two world wars changed
the equilibrium somewhat. The splitting
of Germany into West and East drove
the two halves in different directions
economically. Communism in the East
stultified its economy while the West
received aid from the US in the form of
the 1948 Marshall Plan. The so called
Wirtschaftswunder saw an economic
boom where GNP rose by 80 percent and
the investment rate rose by 120 percent
between 1952 and 1960.
The biggest challenge Germany
has faced in recent years is that of the
reunification of its two parts, both
culturally and economically, as cash
flowed from West to East to rebuild what
the communists couldn’t (or didn’t).
But moving beyond the fall of the Wall,
Germany now has a number of problems to
contend with including the assimilation of
the 1.2m refugees that applied for asylum
in 2015 and 2016. (According to a report on
Al Jazeera a good number are filling the
skills vacuum); a rise in the right wing;
the ending of the Merkel chancellorship;
and whether the UK’s departure from the
EU harms the economy as Germany has
to make up contributions that the UK has
stopped paying just as a further slowdown
may follow from the possible ending of
free movement and the imposition of
tariffs.
Germany narrowly missed recession
in 2019, it may not be so lucky in 2020,
especially given the additional challenges
of COVID-19.
EUROPE’S ENGINE
Even so, Germany is now – alongside
France – the engine of Europe’s economy
now that the UK has left the trading bloc.
The country is federal in nature and
comprises of 16 states, collectively known
as Länder, each of which varies in size and
population. By size, the largest is Bavaria
with a population of 12.44million. The
smallest in size and population is Bremen
with just 663,000 people. The most
populous is North Rhine-Westphalia with
18.07million people.
Being placed in the centre of Europe
makes Germany a hub for goods and
services that are to be distributed
throughout the region; having borders
with every major economy in central
Europe, instant access to both established
markets in western Europe and growing
markets in central and eastern Europe
makes Germany a country not to be
ignored.
Economically speaking, Germany
has a social market economy, where the
spirit of free enterprise is encouraged but
is controlled to prevent large economic
participants from seriously damaging
other interests. Unfair competition,
antitrust matters and the protection of
the environment as well employees are all
dealt with by legislation.
With an estimated gross domestic
product in 2020 of more than $4.02tn
according to Trading Economics, Germany
really is a global economic driving force
and the world’s fourth largest economy.
According to the Nasdaq, the US is placed
first with a GDP of $21.44tn, followed by
China ($14.14tr) and Japan $5tn.
On top of that, Germany’s economy is
expected to grow by about two percent
in the next two years, with future growth
forecast between 0.7 percent and 1.75
percent over the next 20 to 50 years
– assuming of course, that recession
is avoided and the EU successfully
concludes an agreement with the UK.
As Business Development Germany puts
it: ‘the consistently strong economic
performance offers substantial long-term
growth potential for businesses from
countries such as the UK and the US.’
Germany is fortunate as it is the
European Union’s most populous country
with 82.85million people. In comparison,
France has 66.99million and now that
the UK has left the EU, Italy is next
with 60.48million people. Such a large
population makes for a huge domestic
market and its consumer market presents
major opportunities for foreign companies
from all sectors.
SMALL BUSINESSES
SME businesses are important to Germany
– as, to be fair they are in other nations;
82 percent of German firms are classed as
micro SMEs, 15.1 percent as small SMEs
and 2.4 percent as medium SMEs. Just
0.5 percent of firms are noted as large
enterprises. It’s notable that Business
Advancing the credit profession / www.cicm.com / September 2020 / PAGE 24