Issue and objective
Cross-border trade within the European Union (EU) has intensified significantly as a result of the European Single Market. The introduction of the common currency, the euro, 20 years ago has further boosted intra-European trade in most EU countries. Due to its size, the German economy is a major driver of economic development throughout the EU. On behalf of the Bavarian Business Association (vbw – Vereinigung der Bayerischen Wirtschaft e. V.), Prognos investigated the extent to which German demand for European goods and services creates added value and employment in other European countries.
The study first looks at the extent of Germany's trade relations with EU member states. Based on a multi-regional input-output model, we then estimate the extent to which German demand secures added value and employment in the EU and how these effects have changed since 1999.
Finally, a scenario analysis is performed using the macroeconomic model "VIEW". It provides an estimate of the importance of German import demand for growth dynamics in the EU for selected scenarios of economic development in Germany. This illustrates whether and to what extent countries in the EU benefit from an economically strong Germany.
Germany sources almost 52 percent of its imports from the EU, followed by Asia (23.6 percent) and the rest of Europe (10.9 percent). Before Brexit, the share of EU imports was even around 56 percent. Since the UK left the EU, however, it now counts as part of the rest of Europe.
Germany is the most important sales market for countries such as the Czech Republic, Poland, Hungary, Romania, and Slovakia. A quarter to a third of all exports from these countries go to Germany. Overall, the EU member states generate 2.2 percent of their gross value added (around 290 billion euros) through exports to Germany.
Stagnating economic development in Germany would have a significant impact on its European neighbours – far more than zero growth in France and Italy, whose trade links with other EU countries are less pronounced.
The results of the study point to the great importance of the German economy as a driving force for the EU. Above all, EU member states in Central-Eastern Europe can benefit from a strong German economy. On the other hand, these countries, e. g. Poland, also contribute significantly to the economic success of the EU.
The study was presented by Dr Michael Böhmer in Munich on 25 May 2022.
Links and Downloads
To the Study (website vbw, German)
To the vbw Press Release (German)
Dr Andreas Sachs, Eva Willer, Jan Limbers