Strengthening the economy, investing in the future

Strengthening the economy, investing in the future

Many people agreed that a booming economy makes a major contribution to wellbeing, along with the right conditions for competition and a climate that encourages innovation and investment. However, some criticised the influence that corporate interests have on policy.

Many people agreed that a booming economy makes a major contribution to wellbeing, along with the right conditions for competition and a climate that encourages innovation and investment. However, some criticised the influence that corporate interests have on policy.

Many companies and professionals in Germany generate prosperity that benefits everyone. That is nice. Life would be even more worth living if social and economic freedoms were greater than they are now.
from an online response submitted on 21 April 2015

Creating opportunities for inclusive, sustainable growth

Experts and statisticians all agree that real gross domestic product (GDP) is not suitable as the sole indicator of prosperity in society, because prosperity means more than economic growth. The GDP tells us nothing about how many people benefit from growth and to what extent, nor about whether this growth is inclusive, lasting and environmentally friendly.

We can’t simply demonise growth, but growth must be sustainable.
from the national dialogue event of the German Federal Ministry for Economic Affairs and Energy in Magdeburg on 7 July 2015

However, the gross domestic product is a central and necessary indicator for a country's economic performance. It is given as a per capita figure to make it easier to draw comparisons between rural and urban areas and between countries with high and low population densities.

The growth in GDP per capita shows that Germany is a strong country. Between 1991 and 2016 GDP per capita increased by more than one third.

In the states of eastern Germany the amount of goods and services produced each year that make up GDP has more than doubled since reunification. In 2015 GDP per capita in Eastern Germany was 72.4 per cent of that of states in Western Germany.

GDP per capita in euros (adjusted for price changes, index 2010=100)

Compared to other countries, Germany has a relatively high GDP per capita, placing 17th out of 190 countries in 2016. The German economy recovered quickly from the effects of the global economic and financial crisis in 2008. Two economic packages introduced by the federal government involving a short-time working scheme and support measures to shore up the banking sector contributed to the recovery. By 2011, GDP per capita had already returned to pre-crisis levels.

What Does the Government Do?

The federal government bolsters economic growth with a wide range of measures and policy instruments. It keeps its finger on the pulse by publishing economic growth forecasts for Germany three times a year. The government uses these reports as a basis for estimating tax revenues and drawing up the federal budget.

Investing in a positive future

Investment is the key to creating a future-proof economy. If we are to enjoy prosperity today and in the future, investment is vital – both public and private, in school buildings, roads and bridges, electricity grids, state-of-the-art factories and powerful information technology.

Wealth must be earned, which is why it should always be a case of investing first and then redistributing. Otherwise the wealthy country we live in today will be poor tomorrow.
from an online response submitted on 12 June 2015

The investment rate reflects the percentage of economic output that flows into public and private investment. The investment rate is measured via gross fixed capital formation as a percentage of GDP. This indicator is particularly important with regard to future wellbeing.

Gross fixed capital formation as a percentage of GDP

The investment rate in Germany has stabilised at around 20 per cent since 2002. This is below the level of the early 1990s, when investment was high in the wake of German reunification.

Compared to other industrialised nations Germany is just above the EU average of 19.8 per cent, with a total investment rate of 20 per cent in 2016.

Gross fixed capital formation by state and private sector as a percentage of GDP

Almost 90 per cent of this investment is private, and around 10 per cent public. Businesses mainly invest in new production facilities and create jobs. The state creates and maintains mobile networks, public service infrastructures and public goods.

Some economists warn that Germany falls short of its potential compared to other countries, particularly in the area of public investment. However, it is difficult to make an international comparison of public investment rates. For example, the public investment rate in other countries may be higher because the state covers more costs that are dealt with privately in Germany.

What Does the Government Do?

The federal government has helped municipalities to promote local investment by passing the German Municipal Investment Incentives Act (Kommunalinvestitionsförderungsgesetz) in 2015. The German Federal Transport Infrastructure Plan 2030 (Bundesverkehrswegeplan 2030) involves billions of euros of investment for maintaining the existing infrastructure and for building and expanding roads, the rail network and waterways. Private investors support the federal government through funding and KfW loans, for example for building refurbishment.

Sound budgeting, retaining scope for action

A sound financial base is essential for maintaining a high standard of living in the long term. Generational equity, ensuring the ongoing viability of the welfare state and reducing public debt – these were all important issues for people who took part in the national dialogue. The money we spend today must be wisely invested and funded through sound revenues.

A strong economy, secure finances, jobs and a secure pension are important to us.
from an online response submitted on 15 July 2015

The national debt ratio is a way of measuring fiscal sustainability. It compares public debt with economic output (GDP).

After the national debt ratio increased in the wake of the global financial and European sovereign debt crisis, Germany has managed to significantly reduce its national, state and local authority debt burden over recent years.

National debt ratio

What Does the Government Do?

In 2014, for the first time in 50 years, the federal government budget was balanced without any new borrowing. Indeed, in 2016 the overall budget for the federal government, states, municipalities and the social insurance system actually achieved a small surplus of 0.6 per cent of GDP. However, Germany is still exceeding the upper debt limit of 60% of economic output that is stipulated in the EU Stability and Growth Pact, so a sound budgetary policy is still required.

Promoting innovation and inventive talent

Innovative culture is lacking in Germany. Not least because people fear loss and have a strong aversion to failure. There is no right to fail. The culture is different in the US. Here we don’t get a second chance.
from the national dialogue at the CDU Wirtschaftsrat in Dresden on 22 September 2015
We have a high standard of living because many people have good ideas and develop patents. Thanks to them we have become the world champion in exports.
from an online response submitted on 16 August 2015

Views on innovative culture in Germany could not be more divergent. What does the situation really look like?

Economists agree that investment in research and development increases productivity and the competitiveness of economies, in this way creating growth. Participants in the national dialogue also understood the importance of recognising future trends and implementing innovative ideas. People particularly stressed the need for research in the areas of health and the environment.

A major, established and internationally comparable indicator for an economy's ability to innovate is the research and development (R&D) spending as a percentage of GDP.

Expenditure on R&D increased from 2.2 to 2.9 per cent between 1995 and 2015. In 2015, Germany spent about 89 billion euros on research and development. This was five per cent more than in the previous year.

A glance at other EU Member States shows how well Germany fares in terms of overall expenditure on R&D. In 2015, Germany placed fifth among other EU countries, but internationally its spending on R&D lags behind countries such as South Korea or Japan.

Research and development spending as a percentage of GDP

What Does the Government Do?

With the continuation of its Excellence Initiative (Exzelleninitiative), Digital Agenda (Digitale Agenda) and High-Tech Strategy, the federal government is targeting innovation. In future, it will be providing 320 million euros of funding to encourage innovation in businesses.

Improving entrepreneurial culture

Small and medium-sized enterprises create 16 million jobs in Germany and supply eight out of ten training places. Business start-ups lead to increased competition. They stimulate innovation, higher productivity and a wider choice of products.

Entrepreneurs want to be able to act with a greater sense of responsibility instead of being hampered from doing so.
from the national dialogue event of the Deutsche Industrie- und Handelskammertag in Berlin on 9 July 2015

Many small, new start-ups are particularly innovative. The fewer the hurdles they face, the faster they can be up and running. EU guidelines on start-ups state that it should take no more than three working days and cost around 100 euros to start a new business.

In light of declining numbers of new businesses, economists are calling for more support for start-ups and a reduction in bureaucratic hurdles for new companies.

The indicator time required to start a business provides information on progress in this area. It measures the average number of days that it takes to complete the admnistrative steps needed to set up a limited liability company in Germany.

Time required to start a business in days
Costs required to start a business in euros

In 2016 it took on average 6.9 days and cost 383 euros to set up a business in Germany. The time required in Germany is higher than the EU average of 3.3 days and the cost is slightly above the EU average of 320 euros.

Compared with other countries, Germany provides new entrepreneurs with high levels of legal certainty, but it still needs to improve its entrepreneurial culture. The federal government is keen to encourage and support entrepreneurs. It is focusing on improving access to appropriate financing for new entrepreneurs.

What Does the Government Do?

By passing two German Reduction in Bureaucracy Acts (Bürokratieentlastungsgesetz) and by reforming public procurement law, the federal government has relieved German companies of 2 billion euros of bureaucratic costs. It has also made more than 2 billion euros available to strengthen the venture capital market. Existing federal funding programmes for businesses have also been expanded and augmented.

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