2023-10-05 17:14:39
The bad news is piling up for Germany. And this time, it’s Made in Germany that suffers. Exports from Europe’s largest economy fell 1.2% between July and August, following adjusting for seasonal effects, to 127.9 billion euros, according to data from the German Statistical Office.
This statistical restatement, however, masks a much more drastic decline. Exports actually recorded in August stood at 121.8 billion euros, a drop of 5.8% compared to August 2022. The country had not recorded such a low level of external revenue since January 2022. Furthermore, this unadjusted monthly figure has experienced a negative evolution four times in the last five months. The post-Covid export rebound therefore seems to be drying up.
This decline is fueled by the major Western economies, whose growth prospects are at half mast. The United States thus reduced its imports of German goods by 1.3%, the euro zone countries by 1.5%, and the United Kingdom by 4.2%. “The slowdown in global demand is currently exacerbating structural problems, and the weakening of the euro since the summer is still too small to have a significant impact on exports. As a result, trade is no longer the strong and resilient growth engine of the German economy, but rather a drag,” notes Carsten Brzeski, director of macroeconomic research at ING.
These declines were, however, partly offset by a 1.2% increase in purchases from China. But, with 8 billion euros in orders, the country is less of a risk on exports than on imports. “Given the structure of its foreign trade, the German economy would suffer less from a slowdown in Chinese orders than from a disruption in deliveries of certain strategic materials. Rising global trade frictions may only cause companies to desensitize themselves to China, but in some cases the lack of an alternative supplier is an obstacle. Before new infrastructures, such as the future gigafactories of Tesla in Berlin and Intel in Magdeburg, make it possible to produce locally, it will take years,” wrote Bruno Cavalier, chief economist, and Fabien Bossy, economist, at Oddo at the end of September.
The trade balance, however, increased by 3.75% to 16.6 billion euros, due to a drop in imports of 0.4% to 111.3 billion euros. Germany favored purchases from its neighbors in the Union, with an increase in imports from this region of 1.9%, and at the same time reduced those from the United States, -3.1%, from China, -2%, and from the United Kingdom, -0.9%.
Towards a contraction of GDP in 2023
Difficulties on the export front add to those of the domestic economy. This is particularly affected by construction and real estate, which are suffering significantly from the rapid rise in rates and inflation. The federal government has become aware in recent weeks that it must resolve this crisis, and unveiled at the end of September a multi-year relief plan of 45 billion euros, including at the same time a removal of certain regulatory constraints in the building sector.
If German construction managers are the most worried regarding the state of health of the economy, most other sectors are also concerned. The IFO business climate index fell for the fifth month in a row in September. Worried regarding their daily lives, respondents were slightly optimistic regarding the six-month economic outlook. But the deterioration of export figures will probably dampen these hopes.
The German economy has been stuck in sluggish growth since spring 2022. Over the last 21 months, it has only grown by 0.8%, or 0.1% on a quarterly basis over the period. GDP even fell by 0.1% over this period in real terms. “The recent period has seen the combination of two shocks of rare intensity, one affecting energy prices, the other interest rates. One made certain industrial production lines uncompetitive. The second caused the drying up of bank credit, particularly for financing construction,” estimate the Oddo economists.
For the 2023 financial year, the latest IMF estimate expects GDP to decline by 0.3%, making Germany the only advanced country in contraction. The 1.3% rebound expected for 2024 is also lower than the average growth of developed countries. This would then confirm the negative trend in which the German economy is stuck. Since 2018, it has only been able to do better than its neighbors in 2020, an extraordinary Covid year if ever there was one.
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