The Risks of Investing in Germany

Having a balanced view of risks versus benefits is essential for any investor. Whilst Germany has a very strong economy, it would be unwise not to weigh up the challenges that the country may also face. For instance, the country's membership in the European Union, whilst an enormous advantage over the years, has caused some recent problems in the wake of the European sovereign debt crisis.

 

European Union bailouts have high costs, especially if more countries face problems in the future, and international investors should carefully consider this risk before investing in Germany. The potentially 'contagious' nature of the failing economies of countries in the European Union, where one country's inability to repay its debt could cause other neighbours in the EU to follow suit. Inevitably, this would have a negative effect on Germany's economy and balance sheet.

 

In addition, the issue of demographics is one to bear in mind. Whilst Germany is the 16th most populous country in the world, the country's population is characterized by zero or declining growth, with a total fertility rate has been rated of around 1.4. Just like many other thriving countries in the West, where higher standards of living and medical advancements are causing people live longer, Germany's aging population will inevitably place an increasing burden on its social welfare system.

 

Fortunately, Germany has one of the world's highest levels of education, technological development, and economic productivity. Its rock-solid infrastructure of the educational and social welfare system, the enduring strong national work ethic and the continuing focus on excellence in industry and innovation mean that Germany is well placed to withstand any adverse conditions - whatever fortunes may affect its neighbours in the European Union. Furthermore, the ingrained national character trait for planning and preparing well in advance will always help the German economy to triumph over periods of volatility.

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