Germany's Not So Gloomy Economy

"Currently there's a tendency to be pessimistic in Germany," the government's economic advisory council wrote in its last annual report. But despite bleak growth outlooks, the situation in Germany apparently isn't quite as desolate as commonly thought.

For example, real wages in Germany dropped by 0.9 percent over the last few years while they rose by 7.4 percent on average in the 15 old EU states, according to a report by the Institute for Economic and Social Sciences of the Hans Böckler Foundation (WSI).

Though that may sound bleak for wage-earners, it's good for business, and the reason why Germany leads the world in terms of exports, according to WSI's Thorsten Schulten. He added that a sound export market is also a good indicator for international competitiveness.

"As these numbers show, it makes no sense to say that Germany's trade unions have too much power or that wages are too high," he said.

Apples and oranges

Comparing Germany to countries with lower wages such as Poland and the Czech Republic is also futile, according to Rolf Kroker of German Economic Institute in Cologne (IW).

Productivity is much higher in Germany, which can also rely on well-trained and well-qualified workers despite talk about the country's faltering educational system, Kroker added.

"We're really doing well in the field of mathematics and natural sciences as well as engineering," he said, adding that Germany's ageing population will create problems in the long run.

Foreign investors do notice the current advantages of setting up shop in Germany. According to a report by Ernst & Young, the country takes the No. 5 spot -- behind China, the US, India and Poland -- in a global ranking of favorite places to do business. Germany got best grades for research in development in the survey.

Awash with innovation

With 23,000 new registrations at the European Patent Office, Germans came in third behind the US and Japan last year. Most entries came from the country's automotive, electronic, machine construction, medical and environmental technology sectors. In terms of the government's support for innovation, Germany comes in at the European average with 2.5 percent of gross domestic product.

The area where changes are most needed is the country's fiscal policies: German corporate taxes cannot compete internationally, but the government's reform plans have been put on hold because of likely early elections in the fall.

"That's the first thing the new government needs to deal with," Kroker said.

Bad bureaucracy

Bureaucracy is another problem.

"The high degree of regulation, an inflexible labor market and high social standards all deter investors," Ernst & Young's Peter Englisch said, adding that other countries such as China, India and the eastern European states were benefiting from this.

But access to financial investors, a good infrastructure and Germany's central location within Europe were big advantages, he added.

Kroker also listed the country's rule of law and political stability as further positive factors.

"You shouldn't underestimate the importance of a functioning society: Germany's might be complex, but it isn't corrupt," he added. "That creates reliability."