Economic Indicators in Germany
The unemployment rate is a segment of the labor force that is unemployed expressed in terms of percentage. In January 2017, the unemployment rate of Germany decreased to 3.8 percent from an unemployment rate of 3.9 percent in December and 4.4 percent in the year 2016 (Ferreira 1). In comparison with December 2016, unemployment declined by 1 .2 percent to approximately 1.66 million people while the rate of employment rose by 0.2 percent with 41.86 million inhabitants getting jobs (Ferreira 1). Also, compared with January 2016, the rate of unemployment dropped to 11.2 percent with the rate of employment increasing by 3.1 percent. As such, as at January 2017, approximately 3.8 percent of the labor force in Germany were jobless (Ferreira 1).
A stable currency policy is necessary and vital for proper functioning of the economy (Diallo 93). Besides, with a sound currency system in place, the savers and earners are protected from the loss of wealth while ensuring economic growth and employment. In Germany, the Bundesbank is charged with the mandate to make and implement currency policy decisions to achieve price stability (Chatziantoniou, Ioannis, David Duffy, and George 760).
Germany is endowed with natural resources such as bituminous coal, copper, natural gas, uranium, salt, iron ore, and farmland and construction materials. Bituminous coal in Germany formed in the swamps covering the southern England over 300 million years ago. Following the bituminous coal, brown copper deposits formed later approximately 66 million years ago (Kang and Yung 30). Also, potash and salt are found in large quantities and are mined in the Harz Mountains.
Government debt refers to the amount of money the central bank of the country owes individuals and other institutions especially the financial organizations. In Germany, the debt level recorded was approximately 71.20 percent of the total value of all the goods and services produced in the country in the year 2015 (Kang and Yung 35). The standard of debt by Germany averaged about 66.22 percent from the year 1995 until 2015 with the highest level being recorded in 2010 and the lowest percentage of 54.80 being recorded in 1995 (Kang and Yung 35).
GDP Per Capita
GDP per capita was recorded lastly in the year 2015 and stood at $ 45,408.31 (Kang and Yung 35). Further, the Gross domestic product of Germany is approximately 360 percent of the global average.
In the fourth quarter of 2016, the economy of Germany expanded by 0.4% compared to the growth of 0.1% recorded in September 2016. The growth of the economy was supported by the domestic demand. However, the net trade impacted the economy adversely since imports exceeded exports.
Germany is a democratic country operating under a federal parliamentary system with the federal legislative mandate being vested on the Bundestag which is the parliament of the Republic of Germany and Bundesrat which represents the regional states in Germany.
Economic indicators in Brazil
The rate of unemployment in Brazil increased to 12.6 percent in the three months prior to the month of January 2017 from a rate of 12 percent in the earlier period (Ferreira 1). An unemployment rate of 12.6 percent exceeds the expectations of the market which is 12.4 percent (Ferreira 1).
Decisively, the Monetary Policy Committee of the central bank of Brazil decided to leave the rate of interest unchanged at the rate of 14.25%. Besides, the committee argued that the move was consistent with the examination of the general balance of uncertainties and risks.
Brazil has a variety of natural resources that have played a significant role in the economy of the country. The government of Brazil makes efforts in preserving the natural resources since the resources help in eradicating poverty. Such resources include Iron ore, Bauxite, Granite, sand, clay, Gold, Manganese, and limestone.
In the year 2016, Brazil recorded a debt incurred by the government being approximately 69.49 percent of the Gross Domestic Product of the country. The rate of Debt to GDP in Brazil averaged 56.99 percent from the year 2006 up to 2016 with the highest level of the debt being recorded in 2016 (Ferreira 1).
GDP Per Capita
In Brazil, the Gross domestic product per capita was recorded lastly in the year 2015 and stood at 11159.25 Dollars (Ferreira 1). Further, the total amount of output divided by the population of Brazil is approximately 88 percent of the global average.
Brazilian economic growth fell by 0.9 percent in the last three months of the year 2016 (Ferreira 1). The consumption by households reduced considerably with the investments and exports shrinking less. Government spending was also on the rise during the last three months of the year 2016.
The political system in Brazil is a federal presidential representative where the president is the head of both the government and the state as well as the head of a multi-party structure. Further, the administrative and the political institutions in Brazil comprise of 26 states, federal district, the federal government and the various municipalities
Push Factors in Germany
Low Interest Rates Policies
A low rate of interest in Germany has significant impacts on the lives of the population of the country. For instance, a decrease in investments and a rise in saving tendencies have resulted in a decline in the equilibrium rate of interest. Besides, an equilibrium rate of interest refers to the rate of interest at which the investment level and savings in the economy are equal (Ozyildirim and Victor 10). A rate of interest in the economy plays a major role in the operation and working of the monetary policy. For example, when the rate of interest is low, the cost of borrowing reduces which leads to investors borrowing more money for investments from the banks. As a result, this leads to an increase in the money supply in the economy which in turn results in a sustained increase in the overall price levels of goods and services (inflation).
Conversely, an increase in interest rate will reduce the supply of money in the economy because the cost of borrowing will rise (Ozyildirim and Victor 14). As a result, there will be a reduction in investments and an increase in the saving tendencies by the population. In Germany, the rate of inflation is eating away the savings of the Germans as the European central bank maintains the interest rates close to zero. Increased inflation adversely affects the savings of the people in Germany who are mainly the middle class. Also, the investors do not get much value for their saved money, and as a result, they decide to invest in other countries especially developing economies where the rates of interest and inflation are friendly.
Asset Allocation Model
Concerning the Asset Allocation Models, most pension funds in Germany use the traditional asset apportionment. As such, to meet their returns expectations, the pension funds needs to reassess their overall policies since most investors are diversifying their credit allocation, and most are actively interested in multi-assets and smart beta goods. As such, the corporates in Germany should consider rethinking their models of assets allocation. The investors feel that they will generate more returns from the Multi-assets than the traditional stable income (Ozyildirim and Victor 15). However, according to analysts, multi-asset policies may still face opposition because they do not create an opportunity for the investor to get complete portfolio transparency. Also, the critics argue that the Multi-asset allocation policies may not be able to generate daily reports regarding asset allocation which most investors may be interested.
Pull Factors in Brazil
Pull factors are the dynamics that may lead to the injection of capital to the economy of a country and in the process achieve significant growth in the economy of the country.
Liberalization of Financial Markets
Liberalization of financial markets is the act of reducing regulations and constraints by the government to ensure that private organizations participate actively in the various economic activities such as investments. As such, liberalization is the process of lessening control by the government to boost economic development. Following the Currency crisis in Brazil in 1999 and the implementation of a floating exchange system, the authorities charged with monitoring the economy adopted several norms that lead to suppleness in the exchange rate trade including the Confederation of the exchange rate business (Diallo 93). Also, efforts were made to simplify the procedures involved in remitting capital to other nations.
Decline in Inflation Rates
Intuitively, there has been a decline in the rates of inflation in Brazil. Besides, the consumer prices increased by 4.76 percent in February 2017, down from the initial increase of 5.35 percent in January. As a result, a rate of 4.76 is the lowest that has ever been experienced in the country since the year 2010 (Kang and Yung 60). As a consequence, the decline in the sustained rise in the overall price levels of goods and services has provided an enabling environment for investments, and this has continued to attract both domestic and foreign investments in Brazil leading to positive effects on the economy.
Policy Proposal for Brazil
Debt levels continue to rise in Brazil due to the increasing rates of interest, negative growth in the economy and principal fiscal deficits. As such, the country through the central bank should stabilize the interest rates to attract more investors. From more investments, the Gross Domestic Product of the country will grow significantly, and the country will be strong enough to clear the debts. Further, the country is blessed with various natural resources that include Iron Ore, Gold, Limestone and Manganese. Therefore, efforts and more investments should be devoted to the exploitation these natural resources which will generate revenues that can be utilized by the country in repaying debts.
The unemployment rate is the portion of the labor force in a country that is unemployed. In Germany, the proportion of the workforce that is unemployed is about 3.8 percent. In Brazil, the rate of unemployment is about 12.6 percent. Concerning debt, Germany records a debt level of approximately 71.20 percent of the country’s GDP while Brazil has a debt level of about 69.49 percent of the total value of goods and services produced in the country. Further, both countries are blessed with natural resources with Germany possessing resources such as bituminous coal and natural gas. On the other hand, Brazil is endowed with resources such as Gold and Limestone. Conclusively, the push factors in Germany such as low rates of interest and traditional models of asset allocation drive away investors from the country. On the other hand, pull factors such as the liberalization of markets and decline in the rates of inflation in Brazil has created a friendly environment for investor which has resulted in the pulling of capital into the country.
Chatziantoniou, Ioannis, David Duffy, and George Filis. “Stock market response to monetary and fiscal policy shocks: Multi-country evidence.” Economic Modelling 30 (2013): 754-769.
Diallo, Mbaye Fall. “Retailers’ internationalization in emerging markets: A comparative study of a French and a local retailer’s key success factors in Brazil.” International Business Research 5.10 (2012): 91-99.
Ferreira, Joana. “Germany unemployment rate.” Trading Economics, 3 January. 2017, http://www.tradingeconomics.com/germany/unemployment-rate. Accessed 18 March 2017.
Kang, Sung Jin, and Yung Chul Park, eds. The international monetary system, energy and sustainable development. Vol. 138. Routledge, 2015.
Ozyildirim, Ataman, Brian Schaitkin, and Victor Zarnowitz. “Business cycles in the euro area defined with coincident economic indicators and predicted with leading economic indicators.” Journal of Forecasting 29.1‐2 (2010): 6-28.
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