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• Overview: 
Germany ranks among the world's most important economic powers, witnessed by its presence among the G7. From the 1948 currency reform until the early 1970s, West Germany experienced almost continuous economic expansion, but real growth in gross national product slowed and even declined from the mid-1970s through the recession of the early 1980s. The economy then experienced eight consecutive years of growth that ended with a downturn beginning in late 1992. 

After national unification, eastern German industrial output collapsed to about 40% of its 1989 level, leading to high unemployment in the new states. Reunification strained German public finance, hurt the labor market, and eventually exposed structural weaknesses in the economy. Following a reunification-induced western German economic boom during 1990-92 fueled by explosive consumer demand and capital spending, growth stalled while transfer payments to the eastern states rose to $90 billion per year. In an effort to contain the inflationary pressures of these transfers, the Central Bank (Bundesbank) maintained a high (short-term) interest rate policy which further dampened economic activity. In 1994, the German economy began to recover, and the 10% growth rate in the eastern states was the highest of any region in Europe. 1995 growth was unexpectedly low at 1.9%, though eastern Germany maintained growth of over 5%. 1996 GDP growth was an even lower 1.4%, due mainly to a drop in construction investment and lower private consumption. Growth forecasts for 1997 range from 1.5 to 2.5% -- not enough to reduce unemployment. Exports continue to drive growth in 1997 as private consumption remains low, dampened by modest nominal wage gains, higher contributions to the social security system and the postponement of tax relief measures. 

Germans often describe their economic system as a "social market economy." The German Government provides an extensive array of social services. Although the state intervenes in the economy through the provision of subsidies to selected sectors and the ownership of some segments of the economy, competition and free enterprise are promoted as a matter of government policy. The government has restructured the railroad system on a corporate basis and is privatizing the national airline and postal service. The challenges of restructuring are similar to those faced by the United States a decade ago. The Government has worked hard to improve competitiveness by reforming the nation's social and fiscal systems but these efforts have run into difficulties. Changes to the German "social compact" have met with strong resistence from labor and management alike. 

The German economy is heavily export oriented, with one-third of its national output going to the external sector. As a result, exports traditionally have been a key element in German macroeconomic expansion. Germany is a strong advocate of closer European economic integration, and its economic and commercial policies are increasingly determined by agreements among European Union (EU) members. 

Outside the EU, the United States and Japan are Germany's major trading partners. U.S. - German trade is very dynamic, with both import and export sectors growing by over 10% in 1996. Two-way U.S.-German merchandise trade is more than $50 billion. The United States continued to run trade deficits with Germany; U.S. merchandise exports in 1995 were $22.4 billion, while German exports expanded to $36.8 billion. Major U.S. export categories include aircraft, electrical equipment, telecommunications equipment, data processing equipment, and motor vehicles and parts. German export sales are concentrated in motor vehicles, machinery, chemicals, and heavy electrical equipment. In services, the United States consistently shows a surplus in trade with Germany. 

Germany follows a liberal policy toward foreign investment. About 65% of U.S. capital invested in Germany is in manufacturing. In 1996, total U.S. direct investment in Germany was $41 billion, making the U.S. Germany's the leading source of foreign investment. Total German investment in the United States in 1993 was $35 billion, also up significantly from the 1992 level of $30 billion. 

Seven years after the unification of the two German states, great strides have been made, and the complex task of introducing a market economy in the east is well-advanced. Overall productivity in the former G.D.R., which was less than half that in the F.R.G., is now increasing, narrowing the gap in productivity rates. The challenge is to close the productivity gap altogether. The poor condition of the basic infrastructure, widespread environmental damage, and lower-than-expected levels of private investment in the east have complicated the process of economic integration. Private investment in eastern Germany has been slower than expected in large part because the issue of property ownership in the former G.D.R. has proven difficult to resolve. Most observers nevertheless believe that, after an initial period of economic adjustment, eastern Germany will enter an era of rapid and self-sustaining economic growth. 

Germany's greatest economic problem is its persistently high unemployment rate. As of Spring 1997, unemployment figures were at their highest level since 1933, with nearly one in eight of Germany's working population is on some form of support. In January 1996, government, industry, and labor leaders worked out a "Fifty-Point Action Plan" proposal to halve unemployment by the year 2000, but the current plan cannot achieve its goal without further measures to stimulate growth and employment. Although a recent "Alliance for Jobs" program to trade wage restraint for job guarantees has had some success, it will probably not significantly decrease Germany's high unit labor costs any time soon. Massive layoffs by some of the country's biggest firms have spawned a feeling of insecurity new to western Germans. 

However, despite the growing clamor to address structural rigidities in the labor market and excessive government regulation, the economy remains fundamentally strong and internationally competitive. Although production costs are very high, Germany is still an export powerhouse. Germany competes successfully in highly-engineered, quality products backed by excellent service. German firms are somewhat less successful in high-tech electronic goods. In 1995, Germany ran a merchandise trade surplus of over $60 billion and a manageable current account deficit of about $17 billion. Abundant human capital, low corporate debt burdens, and cooperative industrial relations continue to characterize the German economy. Additionally, Germany is strategically placed to take advantage of the rapidly growing central European countries. Although the Germans face fundamental economic adjustments, they have the discipline and the resources to meet the challenges ahead.  

 
• National product: 
  
GDP - purchasing power parity - $2.4 trillion (1997 est.)  
 
• National product real growth rate: 
  
1.4% (1997 est.)  
 
• National product per capita: 
  
$25,000 (1997 est.) 
 
• Inflation rate (consumer prices): 
 
1.8% (January 1997 est.)  
 
• Exports: 
$498 billion (f.o.b., 1997) 
 
commodities: 
manufactures 89.3% (including machines and machine tools, chemicals, motor vehicles, iron and steel products), agricultural products 5.5%, raw materials 2.7%, fuels 1.3% (1997) 
 
partners: 
EC 47.9% (France 11.7%, Netherlands 7.4%, Italy 7.5%, UK 7.7%, Belgium-Luxembourg 6.6%), EFTA 15.5%, US 7.7%, Eastern Europe 5.2%, OPEC 3.0% (1997) 
 
• Imports: 
$441 billion (f.o.b., 1997) 
 
commodities: 
manufactures 75.1%, agricultural products 10.0%, fuels 8.3%, raw materials 5.0% (1997) 
 
partners: 
EC 46.4% (France 11.3%, Netherlands 8.4%, Italy 8.1%, UK 6.0%, Belgium-Luxembourg 5.7%), EFTA 14.3%, US 7.3%, Japan 6.3%, Eastern Europe 5.1%, OPEC 2.6% (1997) 
 
• External debt: 
$NA 
 
• Industrial production: 
 
western: 
growth rate 2.8% (1994) 
 
eastern: 
growth rate $NA 
 
• Electricity: 
 
capacity: 
115,430,000 kW 
 
production: 
493 billion kWh 
 
consumption per capita: 
5,683 kWh (1993) 
 
• Industries: 
 
western: 
among world's largest and technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics; food and beverages 
 
eastern: 
metal fabrication, chemicals, brown coal, shipbuilding, machine building, food and beverages, textiles, petroleum refining 
 
• Agriculture: 
 
western: 
accounts for about 1% of GDP (including fishing and forestry); diversified crop and livestock farming; principal crops and livestock include potatoes, wheat, barley, sugar beets, fruit, cabbage, cattle, pigs, poultry; net importer of food 
 
eastern: 
accounts for about 10% of GDP (including fishing and forestry); principal crops - wheat, rye, barley, potatoes, sugar beets, fruit; livestock products include pork, beef, chicken, milk, hides and skins; net importer of food 
 
• Illicit drugs: 
source of precursor chemicals for South American cocaine processors; transshipment point for Southwest Asian heroin and Latin American cocaine for West European markets 
 
• Economic aid: 
 
western-donor: 
ODA and OOF commitments (1970-89), $75.5 billion 
 
eastern-donor: 
bilateral to non-Communist less developed countries (1956-89) $4 billion 
 
• Currency: 
1 deutsche mark (DM) = 100 pfennige 
 
• Exchange rates: 
deutsche marks (DM) per US$1 - 1.5313 (January 1995), 1.6228 (1994), 1.6533 (1993), 1.5617 (1992), 1.6595 (1991), 1.6157 (1990) 
 
• Fiscal year: 
calendar year