Germany’s Economic Performance: Factors Explaining Declining Growth
In the first decades of its existence, West Germany experienced impressive economic performance. Powered by export-led growth and close collaboration between business, government, and labor, the Federal Republic of Germany was hailed as an “economic wonder” (Wirtschaftswunder) as it averaged 8.2% growth rates during the 1950s, 4.4% in the 1960s, and 2.8% in the 1970s. In the 1980s, Germany’s economic performance began to slip further, falling to an annual average increase of 2.3%. As shown in Table 1, with only a few years of exceptions, the growth rate has continued to decline since 1990.8 In the 1990s, Germany recorded an average growth rate of only 1.6% and a meager 0.6% between 2001 and 2005. The economy did bounce back in the three years from 2006-2008, with growth averaging 2.3%. But the economy was again hard hit in late 2008 and early 2009 by the global economic downturn. Germany’s economy contracted by 5% in 2009, compared with a 3.7% drop in the Euro-zone overall.9
Once Europe’s growth engine, Germany since the mid-1990s has had, along with Italy, one of the lowest growth rates in Europe. The aggregate output of the German economy, for example, increased by 7% between 2000 and 2009 compared to