Germany’s export strength – bad for Europe?

The high level of competitiveness and the high current account surpluses of the German business sector face criticism abroad and especially within the eurozone:

  • Germany is too focused on its export industry and widely ignores domestic demand and private consumption.
  • Wage restraints have led to inappropriately low wages, reduced unit labour costs and allowed Germany to dump goods on eurozone member states’ markets.

The rise of the export share serves as a proof for the imbalances in foreign trade. The export share sky-rocketed from 22 % of gross domestic product (GDP) in 1995 to 47.4 % in 2018 (Destatis, 2019).

During the Corona-crisis other EU-member states criticized the high volume of government aid aimed at reviving the German economy because most countries do not possess the same strong financial background and possibilities for direct support measures. However, Germany took an active role in the creation of a European Recovery Instrument to jointly overcome the crisis and was willing to compromise on a number of issues to strengthen the EU as a whole. Further recovery of the export-oriented German economy is tightly linked to the existence of strong trade partners.

Mistake: Germany’s consumption is low.
  • The current situation is strongly influenced by the deep recession caused by the shutdown of the economy during the Corona-pandemic. Contrary to previous crises, private consumption could not act as a stabilizing factor. After a sharp drop in GDP of about 5.5 % this year, the Council of Experts predicts a return to growth already in 2021 with +4.7 %. Private consumption is expected to contribute 2.9 percentage points to overall GDP growth – clearly higher than the 1.3 percentage points trade is assumed to add. This would see a return to the pre-crisis situation with private consumption as one of the main engines of growth (Forecast for 2020 and 2021, Council of experts).
  • The stimulus package put in place by the German government in June 2020 comprises several instruments aimed at vitalizing private consumption, i.e. the temporary lowering of value added tax rates. It will be of crucial importance to ensure an appropriate legal framework for a robust further development of the labour market.

Fact: Germany’s export growth is driven mainly by non-eurozone countries.
  • Although Germany’s exports to partner countries within the eurozone have risen since the introduction of the euro, Germany’s exports to countries outside the eurozone have risen much faster.
  • Germany’s export of goods to the eurozone was worth 492 bn. € in 2018. Countries which do not belong to the EU or the eurozone received goods worth 539 bn. € (Destatis, 2019).

Fact: German imports from eurozone members are rising.
  • Germany’s imports from eurozone countries have increased substantially over the past years.
  • German imports from eurozone countries ended the year 2018 by 31.8 % higher compared to the beginning of the recession at the end of the year 2007 (Destatis, 2019).
  • 44 % of Germany’s imports originated from eurozone member states in 2007. This has fallen to around 37.2 % in 2018 only because the imports from the rest of the world increased even more (Destatis, 2019).
  • More and more German companies import intermediate goods from eurozone countries. At the same time, more final products are exported to emerging markets, so countries in the eurozone benefit from Germany’s strong export economy, too. Thus, by rising German exports, imports from the eurozone are rising as well. A 10 % increase of German exports leads to a 9 % increase of intermediate goods imports to Germany from other EU-Member-States (IW Cologne, 2013).
  • Globalized economies are strongly affected by global value chains. Foreign intermediate goods account for 40 % of German exports (Destatis 2019).

Fact: Germany is mainly exporting equipment, which helps our trading partners.
  • Typically, the German economy exports capital goods. By investing in modern machinery and equipment the production potential abroad can be increased.
  • In 2018, Germany’s industrial labour costs continued to increase significantly reaching a level almost one third higher than the average labour costs of the European Union. However, the high quality of German products convinced our trading partners (Eurostat, 2019).

Mistake: Germany’s competitive strength marginalises eurozone members.
  • The table on the left illustrates Germany’s imports from its main trading partners. Obviously, imports from eurozone partner countries significantly rose between 2007 and 2018.
  • In recent years the German collective bargaining parties have ensured that wages generally only rise as strong as productivity improves. Other countries in the eurozone did not follow this principle in the past and have thus weakened their competitiveness.

EU-countries benefit from Germany’s export strength

Germany’s exports to eurozone member states Source: Federal Statistical Office of Germany, 2020

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