Innovative Economy

Germany’s economy is the largest in the European Union and the fourth-largest in the world, after the US, China and Japan. As such, it enjoys a strong network of partnerships around the world, and regularly ranks in the top three nations for imports as well as exports. Germany’s GDP in 2021 was worth around 3.6 trillion euros. That year, German exports were worth around 1.375 billion euros, while imports were worth over 1.200 billion euros. Germany’s most important trade partners are the EU member states, the US and China. On the global market, Germany is particularly successful in the automotive industry, mechanical and plant engineering and the chemicals industry. Germany also has a lively and diverse startup scene. Small and medium-sized enterprises form the backbone of the German economy, hidden “Mittelstand” champions from across the country that have achieved success on the global stage.

The driving force behind Germany’s economic progress is the thriving culture of innovation in German businesses. In order to secure and boost this success, Germany invests over 3% of GDP in research and development. This investment is worth over 100 billion euros a year, with over two-thirds going to businesses. Germany is also providing targeted funding for new and disruptive technologies, innovations Innovations In 2021, company spending on research and development rose to 75.8 billion Euros. The automotive industry accounts for a large share of these investements. Read more › and business models. This included setting up the Federal Agency for Disruptive Innovation (SPRIND) in 2019 and the German Agency for Transfer and Innovation (DATI) in 2021. The Federal Government Federal Government The Federal Government and cabinet is made up of the Federal Chancellor and the Federal Ministers. While the Chancellor holds the power to issue directives, the ministers have departmental powers, meaning that they independently run their respective ministries in the framework of those directives… Read more › adopted a new AI Strategy in 2018 and created a similar Startup Strategy in the summer of 2022. 

Since 1949 German economic policy Economic policy In line with the federal system, structuring and coordinating economic and financial policy is the joint task of central government, the federal states and munici­palities. They cooperate in various committees. Furthermore, the Federal Government seeks the advice of independent economists. Every… Read more › has been based on the model of a social market economy Social market economy The Basic Law of the Federal Republic of Germany does not call for any particular economic order. Yet it is firmly anchored in the principle of the welfare state and therefore excludes a purely free market economy. Since the founding of the Federal Republic of Germany in 1949 the country’s economic… Read more › . Developed in the post-war years by Ludwig Erhard (who would later become Federal Chancellor Federal chancellor The Federal Chancellor is the only member of the Federal Government to be elected. The constitution empowers him to personally choose his ministers, who head the most important political authorities. Moreover it is the Chancellor who determines the number of ministries and their responsibilities… Read more › ), this concept has kept Germany’s economy on an upward track. It guarantees that businesses can trade freely while simultaneously striving to create social checks and balances. 

The Federal Government now aims to develop the proven model of the social market economy into a social-environmental market economy. Climate action is now considered a core element of economic policy, as is evident in the creation of the first-ever Federal Ministry for Economic Affairs and Climate Action following the 2021 Bundestag election. Robert Habeck (Alliance 90/The Greens) is the head of the new ministry. 

A thriving ‘Milttelstand’ is a key characteristic of the German economy, with small and medium-sized enterprises making up over 99% of all businesses in the country. They provide over half of all jobs and employ around 80% of trainees and apprentices. As such they are a pillar of Germany’s dual vocational educational system, which links theoretical teaching at vocational colleges and practical training in the workplace. This dual model enjoys an outstanding reputation around the world and has been adopted by many other countries. 

Successful major international corporations also help shape Germany as a place to do business. Many are listed on the DAX stock exchange in Frankfurt, the key financial centre on the continent of Europe. Frankfurt is also home to the headquarters of the European Central Bank (ECB), whose duties include monitoring the price stability of the euro Euro The euro is the currency of the European Monetary Union and after the US dollar the second most important member of the international currency system. Together with the nation­al central banks, the European Central Bank (ECB), head­quartered in Frankfurt/Main, is responsible for monetary policy… Read more › . 

Germany’s employment market has proved its resilience even during periods of crisis such as the Covid-19 pandemic. Germany has one of the highest rates of employment in the European Union European Union In 1957, Germany was one of the six founding members of today’s EU, along with France, Italy, Belgium, the Netherlands and Luxembourg. The EU is currently made up of 27 states; the euro is the official currency in 20 of them. For Germany, European integration forms the basis for peace, security and… Read more › and one of the lowest unemployment rates. Youth unemployment is also very low. Despite restrictions caused by measures to fight the Covid-19 pandemic, unemployment in Germany in 2021 was only 5.7%. Supplementary payments to workers on reduced hours have also proved their worth. Through the “Kurzarbeitergeld” system, the state picks up a large part of sal­ary shortfalls when employers cut workers’ hours in response to challenging economic conditions. This makes it possible for employees to keep their jobs even during a crisis, and for employers to hold onto their staff.

Well trained specialist professionals are essential to the competitiveness of the German economy. Given this importance, Germany is improving the domestic legal, financial and regulatory environment, such as by expanding whole-day childcare provision. Changes to legislation, such as a law making it easier for qualified professionals to emigrate to Germany, will also help attract skilled workers from abroad – which is important given the demographic transition underway in Germany. 

Like almost every other country around the world, Germany is faced with the challenge of promoting digitalisation in the economy and also of how to shape the digital transformation in the world of work. To help make this happen, Germany is expanding its digital infrastructure in the form of broadband and 5G mobile technology. By developing technology for the Internet of Things (IoT), Germany is providing targeted support for Industry 4.0, where production processes are integrated with ways of communicating over the Internet. Through its Startup Strategy, the Federal Government Federal Government The Federal Government and cabinet is made up of the Federal Chancellor and the Federal Ministers. While the Chancellor holds the power to issue directives, the ministers have departmental powers, meaning that they independently run their respective ministries in the framework of those directives… Read more › also aims to make Germany a leading location in Europe. A range of measures and initiatives are helping clear away legal and regulatory barriers to setting up and financing startups, across areas such as innovation, digitalisation and sustainability.