Germany At A Crossroads

Germany, which accounts for an estimated 21% of the European Union’s GDP and has an unemployment rate that is less than half as high as the EU average, is now facing five big economic challenges:

1. Germany has one of the oldest populations in the world: it’s old age dependency ratio is as high as Greece’s and higher than any other country apart from Italy and Japan; the share of its population aged 80 or older is higher than in any European country apart from France or the “PIGS”. The largest part of Germany’s population is between 45-60 years old. Old age is beckoning.

2. Whereas Britain, France, Italy, Russia, India, China, and Turkey depend on exports of goods and services to account for an estimated 20-30 percent of their GDPs, and the United States, Japan, and Brazil for just 10-20 percent, Germany gets approximately 46 percent of its GDP from exports. As economies throughout Europe and the developing world are simultaneously growing slowly right now, such a dependence on exports may not be a good thing to have.

3. Low energy prices do not benefit Germany in the way that many think, nor does it benefit Germany’s neighbours in northern Europe, central Europe, or the former Soviet Union much (see links for more: here, here, or here). According to the Wall Street Journal, oil imports account for just an estimated 2.4% percent of Germany’s GDP, compared to 3-6% in Spain, Greece, Turkey, Poland, Japan, South Korea, Taiwan, and India, while, according to the World Bank, imports of energy in general account for approximately 62% percent of Germany’s overall energy use, compared to 70-95% in Spain, Portugal, Italy, Turkey, South Korea, and Japan.

4. Germany is facing economic and political diminishing returns in its eastward economic integration. In the past generation it has looked to East Germany and Eastern Europe, but those countries are no longer so cheap; Czech Republic and Slovakia now have nominal per capita GDP’s of around $19,000, for instance, up from $5700 in 2000; Russia has reached $14,000, up from $1800 in 2000. Increasingly there are also political limitations of various sorts to German involvement to its east. Many Eastern European countries, for example, would rather not see the Germans and Russians become too close with one another economically, and also do not want to become German economic satellites themselves. Things may be becoming more politically fraught than they were a decade or two ago.