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Exports soar as economy surges ahead

Germany's powerful export machine cranked into high gear in June, official data showed on Monday, likely driving growth across much of Europe as the continent's biggest economy thundered ahead.

Exports soar as economy surges ahead
Photo: DPA

Analysts said the strong figures bode well for German second quarter growth data due Friday and, given the knock-on effect, should help counter complaints that Germany’s focus on exports crowds out less competitive neighbours.

The June trade surplus of €14.1 billion ($18.7 billion) was up 44 percent from May as exports rocketed 28.5 percent from a year earlier to €86.5 billion, close to a record high set in October 2008.

“This has improved (the) chances of the German economy having grown more rapidly in the second quarter than previously assumed,” Commerzbank analyst Simon Junker said.

“The German economy is bound to see its strongest quarterly growth rate since reunification” in October 1990, ING senior economist Carsten Brzeski added.

Germany, the world’s second biggest exporter after China, suffered its worst post-war recession last year but has bounced back as growing economies snap up German goods.

On the imports side, the picture was even stronger – good for Germany and its European trading partners whose economies benefit in the German slipstream.

Imports soared 31.7 percent to €72.4 billion, the Destatis statistics office said, the all-time record since figures were first compiled in 1950. For the first half of 2010, the trade surplus jumped 26 percent from the same period a year earlier to €74.6 billion, Destatis said.

“We’re seeing Germany doing better than the others right now but to some extent this is also because it did worse than the others in 2009,” Deutsche Bank senior European economist Gilles Moec told AFP.

Since then, exports have picked up markedly, in particular to Asia which puts a high value on German machine tools, autos and chemicals.

“Exports are doing so well that they are helping to produce more jobs and more wages in Europe and this in turn is producing more domestic demand,” Moec said.

Berlin has been criticised by France and others for not boosting domestic consumption and relying on exports for economic growth but Moec pointed out that household savings rates in Germany were actually lower than in France, Italy or Spain.

“This debate really needs to stop,” the French economist said.

Chancellor Angela Merkel has been dubbed “Madame Non” by some for her perceived reluctance to spend heavily on promoting domestic consumption but that is not an accurate picture.

“Germany is the only European country which is actually adding to the stimulus in 2010,” Moec countered.

Germany’s diversified industrial supplier base means exports often have parts sourced from companies in central or eastern Europe, and also in Spain, he noted.

“If Germany does well, this seems to have a very nice second-round effect on Spanish exports,” Moec said.

Europe’s economy should thus again get support from Germany before a forecast slowdown later this year.

“Though overall economic conditions remain good, it seems the best days are coming to an end,” Commerzbank economist Ralph Solveen cautioned.

In the meantime, manufacturers have well-stocked order books and their contribution to European growth will be welcome.

European Central Bank president Jean-Claude Trichet said on Thursday that second- and third-quarter figures “are likely to be better than we had anticipated.

“We are now … in a situation which is obviously better than before,” he said before quickly adding: “I don’t declare victory, we remain cautious.”

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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