October 24, 2017 - mh9868a

Data Analysis: The Economies of Germany and Ireland

Germany and Ireland are two countries in the European Union with solid economies. However, it has been a long struggle for these countries to stabilize their economies because of the stock market crash in the United States on September 29, 2008. In fact, Kimberly Amadeo of a finance website called The Balance writes that the 777.68 point drop on the stock market was the, “largest point drop in any single day in history.” This economic crisis caused worldwide economic problems including government debt, unemployment, and low real GDP rates. However, economies around the world started to slowly improve after a couple of years. More recently, over the past few years, Germany’s economy has stayed strong since the end of the 2008 financial crisis, and Ireland’s economy has been on the rise since the crisis. The annual real GDP, unemployment rates, and trade deficits and surpluses in both Ireland and Germany tracked from 2006 to 2016 will show the improving economic states of both European Union nations. This improvements for the two countries are due to their ability to recover from economic crisis.

The annual real GDP in Germany has been decreasing since 2006. According to the International Monetary Fund (IMF), the annual real gross domestic product (GDP) in Germany in 2006 was about 3.9. Then in 2007 the Wall Street Stock Market in the United States crashed, which caused the sudden and rapid decrease in annual GDP in Germany. In fact, the annual real GDP in Germany in 2009 got as low as -5.6. When considering annual real GDP, 2009 was clearly the worst year in the economic crisis. However, as time went on the annual real GDP slowly started to improve again. Assumably this is because the German government was doing all it could to combat the economic crisis. In her article for the Daily Signal, Romina Boccia states that the German government was lowering taxes and bailing out large companies to keep German businesses afloat. This strategy ultimately helped the country get out of the recession more effectively. So, according to the IMF, by late 2010 the annual real GDP was back up to 3.9. Unfortunately, in 2011 the real GDP slightly fell again to about 0.7, but then hovered around that number until 2016. Overall, the annual real GDP of Germany over the decade from 2006-2016 shows the effort Germany made to steady their economy after the financial crisis of 2008.

The unemployment rate in Germany throughout the years of 2006 to 2016 is indicative of how the German population was doing during economic hardships of the decade. The Organization for Economic Cooperation and Development (OECD) shows that in 2006 the unemployment rate was around 10.3% of the population. Oddly enough, this was the highest level of unemployment in the decade. From there the unemployment rate starts to steadily decline. In fact, in 2009 the unemployment rate had lowered to about 7.7%. Although this is still quite high, it is quite impressive that Germany managed to lower unemployment during the worst year of the recession. Then, following 2009 the OECD shows that the unemployment rate continued to decline. In fact, it declined so much that it was as low as 4.6% in 2015. In her article for the Harvard Business Review, Alexandra Spitz-Oener credits this decline to Germany’s 2003 labor reforms. She claims that the reform caused less government control in the labor force and the rise of wage bargaining in the private sector. Overall, the evolution of the unemployment rate in Germany shows that the economy was strong even through a recession.

Germany’s decade long steady trade surplus has caused some problems for the international economy. According to the World Bank division called the World Integrated Trade Solution (WITS), Germany has has a trade surplus annually since 2006. In fact, WITS shows that Germany’s trade surplus in 2006 was around $1.1 trillion. Then it increased to $1.45 trillion in 2008. When the recession hit in 2009, the surplus dipped back down to $1.1 trillion, but was back to nearly $1.5 trillion in 2011. In 2016, Germany’s trade surplus had fallen to $1.3 trillion. Although this strong trade surplus may sound good for Germany, this surplus has caused some problems for the rest of the word. Actually, one article from the Economist called, “Why Germany’s Current-Account Surplus is Bad for the World Economy,” explains that Germany’s excessive saving and frugal spending hurts the economies of other countries it trades with. Also, the saving hurts the German population because that means Germany is bringing in less imports. However, the amazing rate at which Germany is able to produce and export goods shows that they have a sound industrial system that contributes jobs and potentially lowers unemployment. Additionally, their high trade surplus contributes to their high annual real GDP rates as well. Basically, although Germany’s surplus may hurt other countries, it seems to be benefiting Germany’s economy just fine.

The real annual GDP in Ireland has increased drastically since the financial crisis of 2008. According to the IMF, in 2006 the annual real GDP in Ireland was 5.5. But then, when the stock market crashed in 2008, the annual real GDP quickly dropped to -3.9. In fact, during the worst year of the crisis, annual real GDP went to -4.7 in 2009. Like Germany, when discussing annual real GDP, 2009 was the worst year of the financial crisis for Ireland. However, by 2010 Ireland’s annual real GDP numbers were rising again. According to John Shmuel of the Financial Post, the reason for Ireland’s real GDP recovery is due to their 2008 government plan established as a response to the crisis. Shmuel explains that the new government plan increased taxes and lowered spending. Also, Shmuel writes that outside companies bringing warehouses and business to Ireland has also helped boost the nation’s economy. Thus, the IMF shows that Ireland’s annual real GDP in 2011 was back up to 1.9. However, after a small dip to zero in 2012, Ireland’s annual real GDP skyrocketed to 25.5 by 2015. Since then, Ireland’s annual real GDP has dropped back down to 5.1 in 2016. Thus, Ireland’s annual real GDP shows how it performed throughout the 2008 financial crisis.

The unemployment rate in Ireland dramatically increased then decreased slightly over the years from 2006 to 2016. The OECD shows that the unemployment rate in Ireland in 2006 was only 4.7%. However, in 2008 the unemployment rate began to steadily rise. In fact, it rose so quickly that the unemployment rate hit 12.8% by the end of 2009. Unfortunately for Ireland, this number just continued to increase until the rate hits its peak of 15.13% in early 2012. In her article for the Financial Times, Jamie Smyth explains that the reason the unemployment rate kept rising to such high levels is because of “export-led recovery” and the debt crisis in the European Union. Basically, Ireland was struggling with too much debt and an too many exports which led to higher unemployment. However, Ireland’s unemployment rate slowly started to fall again in late 2012 and eventually hit 7.7% in late 2016. Basically, Ireland’s rocky unemployment rate shows that despite its high GDP, the country was not totally recovering well from the 2008 financial crisis.

Like Germany, Ireland has had a steady, high trade surplus as well. According to WITS, Ireland has had a high trade surplus since 2006. The trade surplus in 2006 was about $107 billion, but rose to $127 billion in 2008. When the recession hit, Ireland’s trade surplus fell to $116 billion in 2009. The trade surplus recovered in 2011 and rose to $127 billion, but then fell again to $115 in 2013. In 2016, the trade surplus was at $128 billion. Furthermore, WITS shows that Ireland’s trade surplus is due to their production of chemicals and compounds. This trade surplus benefits Ireland in a similar ghat a surplus benefits Germany. That is, Ireland’s surplus helps their country’s annual real GDP rise, and it also helps their unemployment rate fall. Overall, Ireland’s trade surplus is beneficial to helping their economy grow after the economic crisis of 2008.

The economies of European Union countries Germany and Ireland both show efficient economic recovery from the Wall Street stock market crash in 2008. More specifically, their respective recoveries can be seen in their high annual real GDP rates, low unemployment rates, and high trade surpluses. Over the past ten years both Germany’s and Ireland’s economies have improved despite the 2008 crisis. Germany and Ireland have both lowered unemployment and increased their trade surpluses significantly. Also, they have both showed strong annual real GDPs for several years in a row. Thus, the two counties have some of the strongest economies in Europe today, and should continue on their upward journey to successful economies.

 

Bibliography

Amadeo, Kimberly. “When and Why Did the Stock Market Crash in 2008?” The Balance, April 3, 2017. https://www.thebalance.com/stock-market-crash-of-2008-3305535.

Boccia, Romina. “How Germany Survived the Economic Crisis.” The Daily Signal, June 19, 2014. http://dailysignal.com/2014/06/19/economic-crisis-survival-germany-shows-preparation-key/.

“Germany | Trade Summary | 2006 | WITS | Text.” Accessed October 14, 2017. http://wits.worldbank.org/CountryProfile/en/Country/DEU/Year/2006/Summarytext.

“Ireland | Trade Summary | 2006 | WITS | Text.” Accessed October 14, 2017. http://wits.worldbank.org/CountryProfile/en/Country/IRL/Year/2006/Summarytext.

Shmuel, John. “How Ireland Pulled off an Economic Miracle That Rivals China, India.” Financial Post, May 16, 2016. http://business.financialpost.com/investing/global-investor/how-ireland-pulled-off-an-economic-miracle-that-rivals-china-india.

Smyth. “Irish Unemployment Hits 14.8%.” Financial Times, June 7, 2012. https://www.ft.com/content/7eed663a-b0b9-11e1-a2a6-00144feabdc0.

Spitz-Oener, Alexandra. “The Real Reason the German Labor Market Is Booming.” Harvard Business Review, March 13, 2017. https://hbr.org/2017/03/the-real-reason-the-german-labor-market-is-booming.

“Unemployment – Unemployment Rate – OECD Data.” the OECD. Accessed October 13, 2017. http://data.oecd.org/unemp/unemployment-rate.htm.

“Why Germany’s Current-Account Surplus Is Bad for the World Economy.” The Economist, July 8, 2017. https://www.economist.com/news/europe/21730159-independence-dream-dissolves-contact-reality-spanish-government-calls-catalans.

“World Economic Outlook (October 2017) – Real GDP Growth.” Accessed October 13, 2017. http://www.imf.org/external/datamapper/NGDP_RPCH@WEO.

Essays economic / economy / GDP / macroeconomics / trade / unemployment /

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