Macroeconomics Case Study

Business Confidence? Very High; Consumer Spending? Very Low: How to get the German Consumer to Spend More?

OR

Abstract:
The world’s third-largest economy, Germany, witnessed a CAGR of just 1% during the period 1999–2004, which was one of the lowest in the G8 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 World Cup.

Pedagogical Objectives:

• To understand the importance of business confidence index for an economy and to examine the factors that influence the business confidence in an economy
• To understand the relationship between business confidence index and spending, both corporate as well as consumer
• To understand the interlinkages among the following factors (a) Business confidence, (b) Interest rates, (c) Unemployment level, (d) Tax rates, (e) Consumer spending and (f) Corporate spending
• To critically examine and analyse the reasons for German consumers to spend less even when the business confidence is high and debate on the measures that are required to be taken by the German government boost the consumers’ spending
• To discuss the relationship between per capita income levels, unemployment levels, tax rtes and consumer spending.

Keywords : Macroeconomics Case Study, Consumption Savings, Business Confidence, Domestic Demand, Managing Budget Deficits, Monetary Policy Fiscal Policy, Economic Reforms, Managing Inflation, Labour Policy Reforms, Minimum Wage Policy, Economic Impact of Hosting FIFA World Cup

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