- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Germany is the largest economy in the EU and the fourth largest economy in the world (after the USA, China and Japan). It owes its competitiveness and position in the world economy to its innovative capabilities and pro-export orientation. In 2021, Germany’s GDP reached EUR 3,570.62 billion and increased by 2.7% year-on-year under the influence of the fading coronavirus pandemic. For 2022, the corps estimates GDP growth of 3.1% in the event that energy prices do not rise sharply due to the Russian-Ukrainian conflict. The scenario with a sharp increase in energy prices reduces the GDP growth estimate to 2.2% (ifo Konjunkturprognose). GDP growth of 3.3% is expected for 2023. Under the influence of the conflict and the rise in commodity prices associated with the recovery after the coronavirus pandemic, the Federal Republic is struggling with record inflation, the highest since German reunification. Estimates for 2022 range between 4 and 6%, with 2023 expected to bring about a 2 to 3% rise in consumer prices. The state budget deficit in 2021 increased by 10.3% compared to 2020, mainly thanks to programs to support companies and the population during the pandemic. Due to the preparation of packages of measures to reduce the impact of the Russian-Ukrainian war and the increase in energy prices, the federal government is planning a deficit budget with a debt of EUR 138.9 billion. The unemployment rate reaches around 5% in 2022 (Bundesagentur für Arbeit), which is a slight decrease compared to 2021, when it was 5.2%. Check ebizdir for economical facts of Germany.
The backbone of the German economy are small and medium-sized, often family-owned businesses (the so-called Mittelstand), supplemented by large multinational companies and concerns. The service sector accounts for approximately 75% of the total GDP, industry 23.8% and agriculture 1.3%. Germany has begun a process of fundamental modernization and greening of the economy, which is characterized by digitization and a change in energy policy (Energiewende), which includes support for electricity production. energy from renewable sources, the exit from the core by the end of 2022 and the end of the use of brown coal in 2038 at the latest. Germany is among the world’s largest exporters (3rd place after China and the USA), in 2021 the export of goods and services reached 1,375 billion. EUR. Germany has a long-term positive balance of foreign trade, although it is decreasing for the 5th year in a row, in 2021 the balance reached +173 billion EUR. Under the influence of the Russian-Ukrainian war, Germany’s exports to the Russian Federation decreased to a minimum. The Russian Federation was the 15th most important trading partner in 2021. The Czech Republic ranks between the 10th and 11th most important trade partners of Germany. Among the most important German exports are vehicles, machinery, chemicals, electronic products, electrical equipment, pharmaceuticals, means of transport, base metals, food products, rubber and plastics. The most important import items include data processing equipment, vehicles and their parts, chemical products, machinery, pharmaceutical products, metals, food and feed, oil and natural gas.
Table from MOP + additionally balance of payments, indebtedness/GDP.
|GDP growth (%)||0.6||-5.3||2.8||3.2||2.8|
|GDP/population (USD/PPP)||57,829.30||55,048.90||58,350.00||62,720.00||66 130.0|
|Export of goods (billion USD)||1,492.80||1,369.00||1,616.00||1,710.00||1,824.00|
|Import of goods (billion USD)||1,239.27||1,166.60||1,415.60||1,489.10||1,570.30|
|Trade Balance (Billion USD)||248.4||218.1||219.7||241||275.2|
|Industrial production (% change)||-3.2||-8.4||2.9||3.9||2.9|
|OECD export risk||ON||ON||ON||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-4.3|
|Public debt (% of GDP)||73.9|
|Current account balance (billion USD)||274.8|
|F.O||14% to 45%|
|VAT||7% and 19%|
German public finances showed state budget surpluses from 2014 to 2019 (in 2019 the surplus reached EUR 1billion). The streak of balanced state budgets was ended in 2020 and 2021 due to the coronavirus epidemic and in 2022 due to the Russian-Ukrainian conflict. For the year 2022, the federal government is counting on an increase in state budget spending of EUR 48billion, while the deficit will amount to EUR 138.9 billion. Despite Germany’s high debt, according to economists, there is no danger of a debt spiral. The public debt/GDP ratio in 2021 was 69.3%. Public debt increased by EUR 162 billion compared to 2020 to EUR 2.476 trillion. EUR. However, thanks to nominal GDP growth, Germany’s total debt increased by only 0.6%.
The German banking system is particularly characterized by the universality of commercial banks and their great openness towards foreign countries. The central bank exercising banking supervision over the functioning of the entire banking system in Germany is the Deutsche Bundesbank, which is based in Frankfurt am Main. The accompanying supervisory body of the banking system is also the Federal Credit Supervisory Authority (Bundesaufsichtsamt für das Kreditwesen), based in Berlin. Every banking institution operating on the territory of the Federal Republic of Germany must prove that it has equity capital of at least EUR 5 million.
Commercial banks can be divided according to their size and importance into three basic groups: private commercial banks (credit banks) with a further division into large banks with nationwide scope, regional banks, private bankers, as well as branches of foreign banks. The total share of this group in the business turnover of all commercial banks reaches one third. savings banks and regional banks with public legal status, which are a specialty of the German banking system. (Landesbanken, Landesparkassen – ZBS). These public law entities belong to the competence of the federal states and are established by state laws. Their goal is to ensure the regional financial infrastructure, and for this purpose, their founder (federal state) provides ZBS creditors with unlimited guarantees and other services of a subsidy nature. This gives these entities a competitive advantage, which allows them to dominate the markets concerned over private banks, which are thus forced to direct their activities to other, riskier areas. cooperative people’s banks (Volksbanken) and Raiffeisenbanken (Raiffeisenbanken) and their headquarters.
5 largest banks in the Federal Republic of Germany according to the balance sheet amount in EUR billion
Deutsche Bank AG 1,348
DZ Bank AG 518
KfW Group 485
Commerzbank AG 462
Unicredit Bank AG 286
The tax system in Germany is complex and the taxes collected are divided into three levels (federal taxes, state taxes and municipal taxes). The income from some taxes is redistributed among these groups by a certain percentage.
Structure of tax revenues Income tax, which includes tax on the income of individuals (wage tax, tax on income from independent activity) and legal entities (corporate tax), represents the most important direct tax. Approximately 40% participate in the total selection. It is collected by the federal states and redistributed in favor of the association (42.5% for personal income tax, 50% for corporate tax), municipalities (15% of personal income tax), the rest remains available to state budgets. Personal income tax is paid by natural persons registered in Germany from self-employment, from agriculture and forestry, from crafts, from gainful activity (e.g. for members of the free professions), from capital assets, from rentals and from other income. For income tax, linear-progressive taxation is applied. A tax-free amount of EUR 8,820 is deducted from the income.
Legal entities are subject to the payment of corporate income tax (corporate tax). It is set at 25% of the profit. Dividends are only half included in the assessment base for personal income tax. Half inclusion of these incomes was introduced at the beginning of 2001 based on EU requirements. The second most important tax is VAT with a 30% share of total tax revenues. It has two rates – 7% and 19%, with a similar breakdown as in the Czech Republic. The tax collected when importing from countries outside the EU is called import tax. Consumption taxes include taxes on beer, sparkling wine, spirits, mineral oil, electricity, tobacco and coffee.