CAUSES OF DEFICITS IN THE GERMAN ECONOMY

Running Head: CAUSES OF DEFICITS IN THE GERMAN ECONOMY 1
CAUSES OF DEFICITS IN THE GERMAN ECONOMY
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CAUSES OF DEFICITS IN THE GERMAN ECONOMY 2
Introduction
Germany is among the richest nations in the European region having been ranked
position fourteen out of the forty four nations in the region (Petersen, 2012). It embraces a free
economy and according to the 2018 Index, it is ranked position 25 world-wide with a score of
more than 74.0 in terms of economic freedom. Germany also embraces business and investment
freedom with a score of 86.1 and 80.0 respectively although investment has been poor in the
country. Germany is the most influential European Union member nation both economically and
politically (Alesina, 2010). Germany has generally been doing great in terms of economic
performance currently recording a surplus in its current account but still more improvements
need to done. The budget surplus in the Germany economy needs to be seriously addressed as it
is contributed mainly by some various deficits brought by various government policies. Germany
has been witnessing imbalance in its trade and has been accused of devaluation although it does
not have a national currency (Chiu, Lee & Sun, 2010). This imbalance in trade which is brought
by various deficits in the economy of Germany needs to be solved to foster economic growth in
Germany. Germany has been clutching with various nations in the European Union. A good
example is the United States which has accused Germany of saving more and spending less
(Cohn, 2015). The United States under the leadership of President Donald Trump has threatened
to introduce tariffs on the Germany imports which will majorly affect its vehicles which
contribute much towards improving the Germany exports. This therefore means that Germany
needs to restructure its economic policies and maintain peace coexistence with the other nations
in order to eliminate its huge trade imbalance and avoid future collapsing of its economy.
Discussion

CAUSES OF DEFICITS IN THE GERMAN ECONOMY 3
Generally Germany has been doing well in terms of economic performance having
improved from the weakest economy in the Europe region to a superpower (Pickhardt & Sardà
Pons, 2016). Despite the good performance of the economy of Germany, various trade
imbalances in its economy have been witnessed due to various deficits in its sectors of the
economy as result of disproportionate economic policies. Some of these deficits are caused by
various challenges to the economy which include low rate of wage growth and inflation,
Germany budgetary surplus and its aging society and low investment and much saving (Keynes,
2017).
a.Low rate of wage growth and inflation
The rate at which the wage for the Germany workers increases has been poor for the last
ten years. After the 2008 great recession, the Germany workers were even witnessed accepting
low wage rates in order to secure their jobs (Clark, Georgellis & Sanfey, 2012). During those
days unemployment rate was high averaging more than 10 percent. Since then the Germany
economy has been improving and the unemployment rate has been decreasing. Although the
economy has been improving its performance, the wage rates for the Germany workers have still
been increasing at a slow pace. The 2018 statistics show that the unemployment rate in Germany
has decreased to 3.9 percent. This is a relative low rate of unemployment at which workers
should be paid a relatively higher wage rate but still the wage rates for the Germany workers are
still low compared to their economic growth. The lower wage rates for the Germany workers
have left them with little to spend and as a result they end up spending less on imports (Bonin,
Kempe & Schneider, 2012). Due to this there has been an imbalance in trade between Germany
and other nations due to deficits in consumer expenditure (Nilsson, 2013).