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*Germany, Economy

Overview:
With the collapse of communism in Eastern Europe in 1989, prospects seemed
bright for a fairly rapid incorporation of East Germany into the highly
successful West German economy. The Federal Republic, however, continues to
experience difficulties in integrating and modernizing eastern Germany, and
the tremendous costs of unification have sunk western Germany deeper into
recession. The western German economy grew by less than 1% in 1992 as the
Bundesbank set high interest rates to offset the inflationary effects of
large government deficits and high wage settlements. Eastern Germany grew by
6.8% in 1992 but this was from a shrunken base. Despite government transfers
to the east amounting to nearly $110 billion annually, a self-sustaining
economy in the region is still some years away. The bright spots are eastern
Germany's construction, transportation, telecommunications, and service
sectors, which have experienced strong growth. Western Germany has an
advanced market economy and is a world leader in exports. It has a highly
urbanized and skilled population that enjoys excellent living standards,
abundant leisure time, and comprehensive social welfare benefits. Western
Germany is relatively poor in natural resources, coal being the most
important mineral. Western Germany's world-class companies manufacture
technologically advanced goods. The region's economy is mature: services and
manufacturing account for the dominant share of economic activity, and raw
materials and semimanufactured goods constitute a large portion of imports.
In recent years, manufacturing has accounted for about 31% of GDP, with
other sectors contributing lesser amounts. Gross fixed investment in 1992
accounted for about 21.5% of GDP. GDP in the western region is now $20,000
per capita, or 85% of US per capita GDP. Eastern Germany's economy appears
to be changing from one anchored on manufacturing into a more
service-oriented economy. The German government, however, is intent on
maintaining a manufacturing base in the east and is considering a policy for
subsidizing industrial cores in the region. Eastern Germany's share of
all-German GDP is only 7% and eastern productivity is just 30% that of the
west even though eastern wages are at roughly 70% of western levels. The
privatization ag