Recent Economy

This week I will be talking about Germany and their recent economic. Germany faces significant demographic challenges to sustained long-term growth. Low fertility rates and declining net immigrationg are increasing pressure on the country's social welfare system and necessitate structural reforms. The modernization and integration of the eastern German economy- where unemployment can exceed 20% and this may continue to be a costly long-term process, with annual transfers from west to east amounting in 2008 alone to be roughy $12 billion. Reforms launched by the government of Chancellor Gerhard Schroeder (1998-2005), deemed necessary to address chronically high unemployment, which in 2008 reached a new post-reunification low of 7.8%. These advances, as well as a government subsidzed, reduced working hour scheme, have helped to explain the relatively modest increase in unemployment during Germany's 2008-09 recession- the deepest since World War II. GDP grew just over 1% in 2008 and contracted roughly 5% in 2009. Germany crept out of the recession in the second and third quarters of 2009, thanks largely to rebounding manufacturing orders and exports- primarily outside the Euro Zone- and relatively steady consumer demand. The Germany economy probably will recove to about 1.5% growth for the year 2010.However, the relatively strong euro, tighter credit markets, and an anticipated bumb in unemployment could cloud Germany's medium-term recovery prospects. Stimulus and stabilzation efforts initiated in 2008 and 2009 and tax cuts introduced in Chancellor Angela Merkel's second term will increase Germany's record budget deficit, which is expected to exceed 5% of GDP in 2010. The EU have given Germany until 2013 to get its consolidated budget deficit below 3% of GDP. A new constitutional amendmant likewise limits the federal government to structural defictis of no more than 0.35% of GDP per annum as of 2016.