major macro economic indicators
|2017||2018||2019 (e)||2020 (f)|
|GDP growth (%)||2.5||1.5||0.5||-7.2|
|Inflation (yearly average, %)||1.5||1.7||1.4||1.4|
|Budget balance (% GDP)||1.2||1.9||1.2||0.6|
|Current account balance (% GDP)||8.1||7.4||7.2||6.7|
|Public debt (% GDP)||65.3||60.9||59.3||57.5|
(e): Estimation. (f): Forecast.
- Strong industrial base (25% of GDP, 2018)
- Low structural unemployment; well-developed apprenticeship system
- Importance of family-owned exporting SMEs (Mittelstand)
- Relatively low private household debt (95% of disposable income, 2018)
- Importance of the ports of Hamburg, Bremerhaven and Kiel
- Institutional system promoting representativeness
- Declining working population from 2020 onwards, despite immigration
- Low bank profitability
- Prominence of the automotive and mechanical industries, particularly in exports (32% of GDP in 2018)
- Capacity constraints, insufficient investment (especially in internet accessibility) and venture capital limit productivity gains
- Eastern Länder still lagging behind, although the gap is closing
- Splitting political party system, which the Germans are not used to
Industrial recession but strong private consumption
The German industry has been in a recession in 2019. Production numbers in a yearly comparison have been almost constantly negative since August 2018 at least until the end of 2019. New orders and several sentiment indicators for the manufacturing sector do not suggest a strong recovery in 2020. The reason for this are numerous. The trade conflict between the United States and China as well as uncertainties related to the Brexit are keeping the uncertainty high, affecting the willingness to invest (equipment investments are 11% of GDP) and are weighing on exporting companies. Lower demand from the main trading partners the United States and China, due to the “soft landing” of its economic growth, are weighing on the German export business (50% of GDP). Both factors should keep on in 2020. In addition, the German car sector continues to struggle with the aftermaths of the Diesel-scandal (including driving bans in some city centers), cyclical factors and the technical transformation towards new driving technology. This has effects on all supply-chain industries like the metal/machinery and the chemical industry. In addition, the climate change with the hot summers of the last years are weighing on the agriculture-sector as well as on the industry with higher energy costs. Since investment goods are the main share of German exports, net exports were negative the third quarter of 2019. However, private consumption (53% of GDP) is still strong, supported by a very tight labour market (unemployment rate with 4.8% in October 2019 on the lowest level since the reunion), a robust wage growth and very low interest rate environment, due to a negative deposit rate of the ECB. Together with a moderate public spending (14% of GDP) and a still vivid construction sector (11% of GDP), private consumption is keeping the German economy in a balance. A major change of this situation is not expected in 2020. The global uncertainty factors will keep on. In general, the German economy should get used to this new status quo of higher unsecurity. Therefore, a limited recovery in trading activity is expected. Private consumption should be the main column of the German economy, as long as the weakness of the industry sector will not jump over to the service sector (some corporate-near services were already affected in the second half of 2019) and the unemployment remains at a robust level. The ECB should foster consumption, as it will be still ultra-expansive in 2020, while inflation should remain close to 2019 level. Together GDP growth should remain stable (with calendar effects the GDP growth rate should reach 0.9%, as there are more working days in 2020 compared to 2019).
Public and external surpluses are shrinking
The government plans record investments with €39.8 billion (1.2% of GDP) in 2020. They should mainly support education, the structural change of the withdrawal from lignite mining, environmental protection and the defence sector. Since at the same time the tax revenues should be more modest, the public surplus will shrink. The same is true for the current account surplus, which is expected to diminish further in line with the trade surplus (6% of GDP). The balance of services should remain in deficit due to notably spending by German tourists, while the income balance will remain in surplus as the foreign investments are still increasing quite strong due to the low interest rate environment in Germany.
Grand Coalition under pressure
Following the parliamentary elections of September 2017, a coalition negotiation between the Conservatives (CDU-CSU), the Greens and the Liberals (FDP) failed, so that in the end, under a lot of protest from the party basis of the SPD, the Conservatives and the Social Democrats (SPD) formed the third Grand Coalition under the leadership of Chancellor Angela Merkel (CDU). The half-heartness of the SPD in the Coalition resumed, with two party leaders stepping down since the beginning of 2018. The new SPD leader-duo Norbert Walter-Borjans and Saskia Esken, two left-wing Social democrats tend to leave the Grand Coalition (only possible with the approval of the SPD parliamentary group in the Bundestag). In that case, Merkel could build a minority government until the end of the current term in autumn 2021, she could try again with the coalition CDU-CSU, Greens and FDP or call a new election. Polls show that in a new election, two-party coalitions, even the current one, would not have enough votes, only a three party coalition will have enough support. As no party wants to work with the right-conservative AfD, the formation of new coalitions will get very difficult, as minority governments are uncommon in Germany.
Last update : February 2020
Bank transfer (Überweisung) remains the most common, means of payment. All leading German banks are connected to the SWIFT network, which enables them to provide a quick and efficient funds transfer service. The SEPA Direct Debit Core Scheme and the SEPA Direct Debit B2B are the newest forms of direct debit.
Bills of exchange and cheques are not used very widely in Germany as payment instruments. For Germans, a bill of exchange implies a critical financial position or distrust in the supplier. Cheques are not considered as payment as such, but as a “payment attempt”: as German law ignores the principle of certified cheques, the issuer may cancel payment at any time and on any grounds. In addition, banks are able to reject payments when the issuing account contains insufficient funds. Bounced cheques are fairly common. As a general rule, bills of exchange and cheques are not considered as effective payment instruments, even though they entitle creditors to access a “fast track” procedure for debt collection in case of non-payment.
The amicable collection is an essential step to the success of collection management. The collection process generally begins with the debtor being sent a final demand for payment, via ordinary or registered mail, reminding the debtor of their payment obligations.
According to the law for the acceleration of due payments (Gesetz zur Beschleunigung fälliger Zahlungen) a debtor is deemed to be in default if a debt remains unpaid within 30 days of the due payment date and after receipt of an invoice or equivalent request for payment, unless the parties have agreed to a different payment period in the purchase contract. In addition, the debtor is liable for default interest and reminder fees upon expiry of this period.
Debt collection is recommendable and common practice in Germany.
Provided the claim is undisputed, the creditor may seek order to pay (Mahnbescheid) through a simplified and cost-efficient procedure. The creditor describes the details of their claim and is subsequently able to obtain a writ of execution fairly quickly via the Online-Dunning Service (Mahnportal), direct interfaces or (only for private individuals) pre-printed forms. Such automated and centralised (for each Bundesland, federal state) procedures are available all over Germany.
This type of action falls within the competence of the local court (Amtsgericht) for the region in which the applicant’s residence or business is located. For foreign creditors, the competent court is the Amtsgericht Wedding (in Berlin). Legal representation is not mandatory.
The debtor is given two weeks after notification to pay their debts or to contest the payment order (Widerspruch). If the debtor does not object within this timeframe, the creditor can apply for a writ of execution (Vollstreckungsbescheid).
During ordinary proceedings, the court may instruct the parties or their lawyers to substantiate their claim, which the court alone is then authorised to assess. Each litigant is also requested to submit a pleading memorandum outlining their expectations, within the specified time limit.
Once the claim has been properly examined, a public hearing is held at which the court passes an informed judgement (begründetes Urteil).
The losing party will customarily bear all court costs, including the lawyer’s fees of the winning party to the extent that those fees are in conformity with the Official Fees Schedule (the Rechtanwaltsvergütungsgesetz, RVG). In the case of partial success, fees and expenses are borne by each party on a pro rata basis.
Ordinary proceedings can take from three months to a year, while claims brought to the federal Supreme Court can reach up to six years.
An appeal (Berufung) may be brought against the decision of the Court of First Instance if the objected amount in dispute exceeds €600. An appeal will also be admitted by the Court of First Instance if a case involves a question of principle or necessitates revision of the law in order to ensure “consistent jurisprudence”.
Enforcement of a Legal Decision
Enforcement may commence once a final judgement is made. If debtors fail to respect a judgment, their bank accounts may be closed and/or a local bailiff can proceed with the seizure and sale of their property.
For foreign awards, in order to obtain an exequatur, the creditor needs a notarised German translation of the decision which also has to be recognised, an enforcement order of this judgment, and an execution clause. Judgments of courts of EU member states are recognised without further procedure – unless certain restrictions arising from European law are applicable.
Out-of Court proceedings
Debtors may attempt to renegotiate their debts with their creditors, which helps to protect debtors from early payment requests. However, the procedure is in the creditors’ interest as it can be faster and tends to be less expensive than formal insolvency.
Following a petition filed before insolvency court on the basis of illiquidity or over-indebtedness, the court may open preliminary insolvency proceedings, where it appoints a preliminary administration aimed at exploring the chances of restructuring the company. If the administration authorizes this restructuration, it then initiates formal proceedings and nominates an administrator in charge of continuing the debtor’s business whilst preserving its assets.
Liquidation may be initiated upon demand of either the debtor or the creditor provided that the debtor is unable to settle its debts as they fall due. Once recognized through a liquidation decision and once the company has been removed from the register, the creditors must file their claims with the liquidation administrator within three months of the publication.
Retention of title
This is a written clause in the contract in which the supplier will retain the ownership over the delivered goods until the buyer has made full payment of the price. There are three versions of this retention:
- simple retention: the supplier will retain the ownership over the goods supplied until full payment is made by the buyer;
- expanded retention: the retention is expended to further sale of the subsequent goods; the buyer will assign to the initial supplier the claims issued form the resale to a third party;
- extended retention: the retention is extended to the goods processed into a new product and the initial supplier remains the owner or the co-owner up to the value of his delivery.