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GERMANY ECONOMIC MODEL 2014

               To: The Right Honourable Federal Minister of Economic Affairs Mr. Sigmar Gabriel

   From: Athinarayanan Sanjeevraja

   Date: January 20, 2014

   RE:  German Economy 2014
Federal Minister of Economic Affairs Mr. Sigmar Gabriel
Excellency,
Federal Minister of Economic Affairs Mr. Sigmar Gabriel, let me start by paying my respects to you and through you to.

The Honourable Federal Minister, Germany’s economy grew just 0.4 percent in 2013 due to troubles of eurozone and exports were flat. German economy is expected to improve due to eurozone is showing the sign of recovery, raising domestic consumption and exports will pick up during this fiscal.

The Honourable Federal Minister, it is my belief that a Germany economic model requires in both exports and domestic demand. Germany should pay more attention to raising domestic demand as well as export to put growth on sounder footing. Germany is an export-led growth model. There is a tendency that exports have a stronger impact on economic growth when a country has a higher ratio of openness to international trade. Thus, the export led growth model ultimately requires ever growing export surpluses. It effectively requires exploding foreign debt ratios of its trade partners. Germany’s export surplus has risen to a record high. But exports cannot keep with the high expansion speed of the last few years. The export led growth model is affiliated with several structural problems. For instance, consumer market in developed economies, emerging market economies, declining relative price of manufactured goods, increasing trade barriers and financing difficulties making the export led growth model perilous. Moreover, German export markets in the eurozone are only expected to provide weak stimulus. Germans products continue to be in demand throughout world. Thus, Germany should pay more attention to superior technology, producing more sophisticated goods which leads to more efficient management practices while stimulating innovation and technological advance. Technology intensive exports always have a significant positive effect on economic growth. Other side, exports of products with low technological intensity exhibits a negative effect on economic growth. Thus, Germany should export more value added products, with special focus on high technology exports. Better economic growth performance is also enhanced if Germany specialise set of products rather than export a large set of products. German government should support high technology exports. For that Germany should sharpening competitive edge of the manufacturing industry through development of machinery and component industries and nurturing of small and medium size firms.

The Honourable Federal Minister, German economy is an export led growth model which has benefited from globalisation. Germany will try to remain the world’s pre-eminent producer of high quality equipments and cars. Saving on raw material and energy consumption fits that pattern as it reduces costs. Producing equipments and cars that use less energy also fits that pattern, as it increases the non-price competitiveness of German exports when customers face higher energy prices. The further development of German economy largely depends on the outcome of the euro crisis. Presently, euro-zone is showing the sign of recovery. I hope that eurozone can overcome the crisis completely during this fiscal and German economy might continue with its export lead growth model. If Germany adopted a new growth model based on domestic demand rather than on export surpluses, the long term stability and growth of the European economy better served. Expansion of domestic consumption would require higher wage growth, more equitable distribution of income and more government spending, particularly on education and healthcare. A better education system which would correct the class bias of the present system and increase productivity and employability.          

The Honourable Federal Minister, successful and sustained economic growth requires growth in both exports and domestic demand. Thus, Germany should pay more attention to raising domestic demand as well as exports for the growth of both Germany and European economy.

Thank you very much for your attention.

Sincerely Regards,
Athinarayanan Sanjeevraja.
Athinarayanan Advisory Authority
Athinarayanan Twitter


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