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Abstract

The world''s third largest economy, Germany, witnessed a compounded annual growth rate (CAGR) of just 1% during the period 1999-2004, which was one of the lowest in the G8 (Canada, France, Germany, Japan, Russia, UK and USA) countries. Low consumer spending was cited as the main reason for the dismal economic performance, which had resulted in low domestic demand and high unemployment rates. However, in 2006, Germany''s business confidence index reached a 15-year high, invigorating the economy. Meanwhile, analysts projected it to be a temporary phenomenon, which was the result of the frenzied infrastructure development and business activities in preparation for hosting the 2006 FIFA (International Federation of Football Associations) World Cup. The purpose of this case is to: (1) understand the relationship between consumption and saving; (2) understand the relationship between employment, demand, inflation and gross domestic product (GDP); (3) discuss whether the rise in the business confidence index of Germany is real or is just a temporary phenomenon; (4) discuss the economic impact of hosting international events like the FIFA World Cup; (5) discuss the reasons for the low consumer spending in Germany; and (6) discuss measures that would encourage the German consumer to spend more and thus revive the economy.
Location:
Other setting(s):
May 2006

About

Abstract

The world''s third largest economy, Germany, witnessed a compounded annual growth rate (CAGR) of just 1% during the period 1999-2004, which was one of the lowest in the G8 (Canada, France, Germany, Japan, Russia, UK and USA) countries. Low consumer spending was cited as the main reason for the dismal economic performance, which had resulted in low domestic demand and high unemployment rates. However, in 2006, Germany''s business confidence index reached a 15-year high, invigorating the economy. Meanwhile, analysts projected it to be a temporary phenomenon, which was the result of the frenzied infrastructure development and business activities in preparation for hosting the 2006 FIFA (International Federation of Football Associations) World Cup. The purpose of this case is to: (1) understand the relationship between consumption and saving; (2) understand the relationship between employment, demand, inflation and gross domestic product (GDP); (3) discuss whether the rise in the business confidence index of Germany is real or is just a temporary phenomenon; (4) discuss the economic impact of hosting international events like the FIFA World Cup; (5) discuss the reasons for the low consumer spending in Germany; and (6) discuss measures that would encourage the German consumer to spend more and thus revive the economy.

Settings

Location:
Other setting(s):
May 2006

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