The agricultural sector amounts to lessthan 1% of GDP and employs 1.
3% of the German workforce. The agriculturalsector has benefited greatly from state subsidies. The main agriculturalproducts include milk, pork, livestock, sugar beets and cereals. Germanconsumers tend to prefer organic agriculture. The country is going through adeindustrialisation process of the food sector.
The industrial sector amounts to about30% of GDP – a dramatic decline from 51% of GDP in 1970. The automotiveindustry is one of the country’s largest industrial sectors, but the Germaneconomy also retains other specialised sectors, including electric andelectronic equipment, mechanical engineering and chemical products. Thedecision to abandon civil nuclear energy by 2022 is likely to change theindustrial landscape in the near and distant future. The service sector amounts to about 70%of GDP and provides work for 70% of the German workforce. The German economicmodel relies heavily on a dense network of small and medium-sized enterprises(SMEs): more than 3.6 million SMEs employ 68% of salaried workers in Germany.
Fiscal and Monetary policiesFiscal PolicyIn 2010, Germany cut 14 million euros intaxes as agreed by the outgoing government coalition of Christian Democrats andSocial Democrats. In 2011, they areaiming to cut 24 million euros in income taxes benefiting in particular low-and middle-income earners as well as families. There are still many details to go into this plan, but regardlessGermany’s goal is to cut income taxes tremendously. This represents an expansionary fiscal policyas Germany is decreasing taxes.
With expansionary policy comes the goal toclose a recessionary gap, decrease unemployment, and stimulate theeconomy. Reducing taxes creates anopportunity for the economy to adjust itself while government spending cancreate new jobs. With more jobs and lesstaxation on income, this will help contribute towards closing the recessionarygap and stabilizing the economy.
Monetary PolicyGermany does not have its own money sothey can not use their own monetary policy. Germany has to abide by what the ECB (European Central Bank) says. The ECB is expected to raise interest rates1.5% by the end of this year. This rising of interest rates will not effectonly Germany, but all the rest of the countries that are involved in the ECB. Thiscan result in unstable prices, and alter many costs of living making it harderfor citizens to get approved for loans on many things.
It increases the cost of borrowing, increasesmortgage income payments, increases incentive to save rather than to spend,rising interest rates affect both consumers and firms, and government debtinterest payments increase.FDIGermany is considered an attractivecountry for foreign direct investment (FDI), but the global recession andsubsequent Eurozone crisis in 2012 have hampered the influx of FDI in recentyears. After reaching USD 33.3 billion in 2015, FDI inflows dropped to USD 9.
5billion in 2016, the second lowest level since 2009. In terms of FDI stock,Germany is now the 10th destination for foreign investment (8th in 2015) afterbeing outranked by Ireland and the Netherlands. In fact, German FDI stock hasbeen melting away since 2012, dropping from USD 1.
08 trillion to USD 771billion in 2016. Among the country’s strengths are ahighly powerful industrial network, a highly skilled workforce with a goodcommand of English, reliable infrastructure, a favourable social climate, astable legal framework and a location in the heart of Europe. Its main weaknessis a high tax rate (for both individuals and businesses) and rather inflexiblelabour laws.