As the world’s third strongest national economy, Germany holds a leading position in terms of its total economic output. With the highest gross domestic product and the largest number of inhabitants in the European Union, it is the most important market in Europe. In global trading of goods and services, the Federal Republic of Germany is in second place after the USA.

Germany stands out as a centre for business through innovative and internationally active companies, qualified and motivated employees, an internationally recognised education system, an excellently developed infrastructure, as well as top achievements in research and development. Due to its central geographical location, Germany is at the same time an interface to the new markets of Southern and Eastern Europe, as well as beyond the boundaries of the new EU.

Social market economy

Economic order in Germany is organised according to the principle of the "social market economy". Although German Basic Law does not prescribe any particular economic order, the embodiment of the principle of the welfare state rules out a completely "free market economy". The concept of the social market economy, which can be traced back to the Federal Republic of Germany’s first Economics Minister and, later, Chancellor, Ludwig Erhard, is secured by flanking market forces with social policy measures.

The model of the social market economy is designed to allow market forces free reign within certain limits and to prevent unsocial outgrowths of market development. The supply of goods is increased and diversified, the providers are motivated to be innovative, income and profits are distributed based on individual performance. At the same time, the social market economy prevents excessive pooling of market strength, ensures participation by employees in basic economic decisions and therefore their participation in social achievements.

The task of the state and politics is to create the framework for functioning competition and to moderate the various interests. At the same time, the state must promote the willingness and ability of people to act on their own responsibility.

World leader in exports

Economic life in Germany is more international in nature than in most other major industrial nations. One in three euros in Germany is generated through exports; nearly one in four jobs depends on exports. In 2003 Germany’s foreign trade surplus totalled 129 billion euros. Germany is the world leader in exporting goods – even ahead of the USA.

Germany’s great competitive strength internationally is illustrated most clearly in its high level of and rapidly growing merchandise exports. The rise in direct investments in Germany by international companies also underlines the good position of the German economy.

Germany’s most important trade partners are western industrial nations. Its closest trade relations are with members of the European Union, with which Germany generates more than half of its turnover from foreign trade. Nearly 72 per cent of German exports remain within Europe; 71 per cent of German imports also come from Europe.

In 2003, Germany’s most important trade partner was once again France. With regard to imports, France was followed by the Netherlands and the USA. The main buyers of German goods and services are, after France, the USA and Great Britain. The states of Central and Eastern Europe – especially Poland, the Czech Republic and Hungary – are also becoming increasingly important to German foreign trade.

Top position internationally

Germany is one of the world’s leading industrial nations. In the last few years, Germany’s industry has considerably boosted its competitive strength and further extended its leading position in the international markets.

German industry is maintaining its strong position in Europe too. Between 1995 and 2001 Germany’s share of total EU production in the automobile industry rose from 48.2 per cent to 52.6 per cent, in machine construction from 42.3 per cent to 44.4 per cent, and in the production of office machines and data processing equipment from 24.9 per cent to 29.7 per cent.

Between 1991 and 2002 Germany’s gross domestic product (the value of all produced goods and services) rose from 1,710 billion euros to 1,984 billion euros. The weakness of the global economy led to a slow-down in growth in 2002. Despite this, in terms of its total economic output, Germany is in third place in the world.

Industries and sectors

The most important branch of the economic activity in Germany, with traditionally a very high share of total economic production, is industry. The 49,000 German industrial undertakings employ nearly 6.4 million staff. Together they generate turnover of more than 1.3 trillion euros. 98 per cent of all German industrial undertakings are small or medium-sized companies (SMEs) with 500 or fewer staff. SMEs generate around 33 per cent of industrial turnover.

Alongside industry, the services sector also plays an outstanding role and it has now become almost as large as industry. A German peculiarity and traditional core of economic life is the crafts trade. With around 863,000 businesses, it is Germany’s most varied economic sector, employing 14 per cent of Germany’s 36 million workers.

German industry is very diversified and in many sectors it is a global leader. Germany is the world’s third largest automobile producer, with more than 70 per cent of vehicles produced here intended for export. Machine and plant construction, in which most German industrial undertakings are involved, is also of outstanding international importance.

Germany is also a world leader in the chemical industry. Furthermore, among Germany’s most innovative sectors with above average growth rates are those of technologies for the use of renewable energies as well as information technology and bio-technology.

Germany as a venue for trade fairs

The trade fair business is one of the leading service sectors of the German economy. As regards hosting international trade fairs, Germany is the world’s number one venue. Around two thirds of the world’s leading trade fairs for individual sectors take place in Germany – among them, the Hanover Trade Fair (the world’s largest industrial trade fair), the Frankfurt Book Fair, the computer fair Cebit, and the International Motor Show (IAA) in Frankfurt am Main. In addition, five of the world’s ten largest (in terms of turnover) trade fair organisers are based in Germany.