Overseas business risk: Germany

1. General overview

Germany is the 4th largest economy in the world and highly developed and industrialised. Its social market economy model provides a high degree of labour protection and re-distribution through the tax system. As result of the coronavirus pandemic, German GDP fell by 5.0% in 2020, but is projected to grow 3.0% in 2021. Germany is the UK’s second largest trading partner, accounting for around 10% of all UK trade in 2019. The UK was Germany’s fifth largest trading partner in goods and services in the same year

2. Political system

Established in 1949, the Federal Republic of Germany is one of Europe’s younger political systems. East and West Germany were reunified in 1990 following the fall of the Berlin Wall. The expanded Federal Republic comprises 16 states, usually referred to as the Länder, each with their own government and a parliament (most of which are referred to as a Landtag). The Länder have considerable autonomy in many areas of policy and regulation.

The Federal government is led by the Chancellor, who is officially elected by the German Parliament. Angela Merkel has held the position since 2005. Coalitions are the norm: there have been no majority governments in Germany since 1961. In the last federal elections, in September 2017, Merkel’s centre-right Christian Democratic Union/Christian Social Union (CDU/CSU) party emerged as the strongest party. Following negotiations, Merkel formed a ‘Grand Coalition’ with Germany’s main centre-left party, the Social Democrats (SPD).

The German Parliament, called the Bundestag, is elected every 4 years. There are currently 709 sitting MPs. Half of the seats are elected directly from the constituencies, and the other half are allocated based on proportional representation using party lists. Parties must win at least 5% of the vote before they may enter the Bundestag.

The governments of the 16 states are represented in the Bundesrat, Germany’s second chamber. State governments appoint their own representatives, so the political composition of the chamber changes in line with state election results, which occur on a rotating basis every 5 years (or every 4 years in Bremen’s case).

The Head of State is the Federal President, a largely ceremonial role. The President is elected for a term of five years by an assembly of members of the Bundestag and Bundesrat. Frank-Walter Steinmeier has held the role since February 2017.

3. Politics

The next federal elections will be held in September 2021. Support for the two main parties dropped considerably in the last federal and EU elections, with the CDU/CSU and the SPD registering among their worst ever results.

In October 2018, Chancellor Merkel announced she was stepping down as leader of the CDU, but that she would remain as Chancellor until 2021. Annegret Kramp-Karrenbauer replaced her as leader of the CDU at the end of 2018. She has since stood down and has been succeeded by Armin Laschet.

Another factor at play in German politics is an upsurge in support for Die Grünen (the Green Party). The Greens increased their vote share by 10 percentage points in the 2019 EU elections. As of February 2021, most polling puts them in second place behind the CDU/CSU on 20% of the vote. The anti-migration Alternative für Deutschland Party (AfD) is now represented in all 16 state parliaments, but has been ruled out as a coalition partner by the other main parties.

4. Economics

The German economy relies heavily on manufacturing (23% of GVA) and exports (47% of GDP). Its export model meant Germany benefited from Asia’s early recovery in 2020 and the economy is expected to reach its pre-pandemic levels of activity in early 2022. Unemployment has remained low throughout the pandemic, only increasing by 1% to 6.3% in January 2021 compared to January 2020.

Germany’s economy is expected to grow over the longer term but prior to 2020 growth had begun to slow: from 2.6% in 2017 to 0.6% in 2019. Externally, the economic situation has become more challenging with decreased foreign demand for German goods, as well as a negative outlook created by broader global trade tensions. While China is Germany’s top trading partner for goods, the US remains the largest trading partner for goods and services.

The domestic economy has been shaped by reduced industrial activity, combined with weakening consumer and business sentiment since 2019. The automotive sector, an important part of the economy, has been particularly affected by the costs of adapting to changes in emissions standards and e-vehicle production. However, households have accumulated savings throughout the pandemic, which could further boost consumption and domestic demand once released.

Despite increases in public investment before and during the pandemic, long-term underinvestment in areas like digitalisation poses a risk to competitiveness over the backlog of infrastructure investment and the low degree of digitalization pose the risk of declining competitiveness in the coming years.

Germany had a surplus in its public finances from 2014 until 2020. However, the effects of coronavirus, including Germany’s substantial economic response, led to a budget deficit of 4.8% in GDP in 2020., As a result, the government temporarily suspended constitutional limits on government borrowing (the ‘debt brake).

4.1 Business environment

Germany offers a competitive tax environment, investment incentives and a secure, highly developed political and economic framework. Infrastructure is of good quality, the work force is highly qualified and legal protections are strong.

There are shortages of skilled labour in some areas. Germany faces some longer-term demographic challenges. Measures to address these challenges have focused on continuing to improve Germany’s well-established technical and vocational education system as well as easing the path for skilled migration.

The minimum wage in Germany is 9.50 EUR an hour, rising to 9.60 from June 2021 and 10.45 by the end of 2022. There are also higher statutory minimum wages for certain occupations. 44% of workers are covered by collective bargaining arrangements where wages are higher that the statutory minimum. Social security contributions are 40% of employees’ gross salaries and are divided more or less equally between employers and employees. The self-employed are exempt from pension and unemployment contributions but not statutory health insurance

Employees earning more than 64,350 EUR annually may choose between private or statutory health insurers. There are a range of competing statutory insurers for those who earn less. Statutory accident insurance contributions are borne entirely by the employer. Advice on this system and other aspects of running a business in Germany is available from Germany Trade & Invest.

Employers planning to send staff to Germany, even for very short periods, should consider both the necessity of a visa and social security payments. Consult the German customs website (in English).

5. Business and human rights

Germany’s constitution, the Grundgesetz (Basic Law), provides extensive protection of individual rights and civil liberties. Germany has ratified most international human rights treaties, including the Universal Declaration on Human Rights, the European Convention on Human Rights and Fundamental Freedoms, and the International Covenant on Civil and Political Rights. Germany has also ratified all major ILO conventions relating to fundamental labour and employment rights, and plays an active role in the ILO’s Governing Body as do both employer and employee representatives. Employees have the right of assembly, free speech and membership of trade union organisations in Germany. Members of unions have the right to strike.

Germany’s Equal Treatment Act forbids discrimination on the basis of ethnicity, gender, religion, disability, age or sexual identity and orientation. The Federal Anti-Discrimination Agency provides advice for employers and employees in English.

Germany has a levy for firms for businesses who employ more than 60 workers where fewer than 5% of them are disabled. 125 EUR for every unfilled position when 3-5% of employees are disabled, 220 EUR when 2-3% of the workforce are disabled and 320 EUR when less than 2% of workers are disabled. The levy is spent on measures designed to be bring the disabled into work. The levy is reduced for firms with between 40 and 60 employees. More information can be found from a local inclusion office (in German).

From 2021, firms listed on the stock market or where employee representatives are members of the board (generally business with 2,000 employees or more) must have at least one man and one woman on their board when there are more than three board members.

6. Bribery and corruption

According to Transparency International’s Corruption Perceptions Index, Germany ranked 9th in 2020, two places higher than the UK.

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

7. Terrorism and security

There is a general threat from terrorism in Germany. For more details, please refer to the section on terrorism at FCDO travel advice.

Around 2.5 million British nationals visit Germany every year. Most visits are trouble-free. If you need to contact the emergency services call 112.

8. Cyber security

Germany has introduced a body of measures and legislation in recent years to strengthen its resilience and incident response capabilities to malicious cyberattacks and infiltration, also with a view to ensuring a safer environment for companies to do business in.

9. Intellectual property

IP rights are territorial i.e. they only give protection in the countries where they are granted or registered. A European patent is a “bundle” of individual national patents. There is no single European patent. If you are thinking about trading internationally, you should consider registering your IP rights in your export markets.

For information on registering your intellectual property in Germany, you should contact:

Email: info@dpma.de

Please find further information on Intellectual Property.

10. Department for Business and Trade (DBT)

The DBT Germany team offers support and advice for British businesses who are interested in exporting to or doing business in Germany.

Read our exporting to Germany guide to understand the opportunities for UK businesses.

Contact the DBT team in Germany for further information.

12. Other useful links