| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy


Finfacts changes from 2015

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Global Cost of Living

Irish Tax - Income/Corporate

 

Feedback

 

Content Management by interactivetools.com.

News : EU Economy Last Updated: Apr 13, 2015 - 9:21 AM


German exporters facing strong headwinds despite a lower euro - Part 1
By Michael Hennigan, Finfacts founder and editor
Apr 10, 2015 - 8:12 AM

Email this article
 Printer friendly page

German exporters are facing strong headwinds despite the recent lower euro rate compared with other significant currencies, according to a Deutsche Bank report. The combination of the structural global trade slowdown, increased localization of production, demographic changes in Germany, the impact of recent economic policy decisions and further toughening of international competition are likely to be a considerable challenge over the medium term.

The economists say that the German domestic economy will play a bigger role again. "We see this as a natural reaction of an economy to changes in the (global) business environment. Government policies can help ease the transition. German exporters could become even more globally active firms over the medium term. The specific reactions will vary by sector, though. The earnings generated by these firms around the globe are likely to be a blessing for an ageing and more domestically driven economy in the decades ahead."

German exports rose by 3.9% in February year-on-year, Destatis, the federal statistics office, reported Thursday. Europe's biggest economy shipped goods overseas valued at €76.5bn in the month while imports rose by 0.8% compared with February 2014.

Destatis reported Germany's foreign trade balance was a surplus of €19.2bn for February, up from €16.2bn a year earlier — exports to Eurozone countries rose by 1.7% and to the 28 member country European Union by 3.4% to total €56.6bn, while shipments to countries outside the EU amounted to €39.2bn, a 4.6% rise.

Germany last year reported an annual export record of €1.133tn and the main customers were France and the US, followed by the UK, China and the Netherlands. Most goods imported came from the Netherlands, China and France.

Analysis: Germany world's top surplus economy; UK tops deficit ranks

Automotive industry accounted for 18% of German goods exports in 2014

Germany at full-employment: Lessons for low-pay US manufacturing

The Deutsche Bank report says that at the sector level there have been mixed responses by companies to growing globalisation. The automotive industry has aggressively pursued a two-pronged strategy comprising modernisation of its domestic factories and export expansion, on the one hand, and vastly increasing production outside Germany, on the other. The mechanical engineering sector continued to have a relatively high share of domestic value added. In the electrical engineering sector there was a shift towards capital goods. "The chemicals industry is the only one of the traditional export sectors where there has been a constant decline in the real capital stock in Germany of late. The reluctance to invest has probably been mainly due to high energy prices and uncertainty about the future direction of energy policy."

  • Germany's share of world trade has fallen from over 11% in the early 1990s to just over 7% in 2014. During this period, China became the world's biggest manufacturer;
  • Based on the manufacturing sector, the share of total value added since the mid-1990s has remained steady at around 22%. In the Eurozone the share has fallen from over 20% to nearly 16%. The German manufacturing segment generates roughly 50% of its revenues directly with foreign customers. However, the indirect export share is much higher due to close supply links within the industry and because of the recourse to domestic service companies. This is highlighted by the fact that the export dependency ratio of German GDP is 27% and that about 25% of German employment is reliant on exports;
  • Since the early 1990s German companies have been more active than their counterparts in other developed economies in exploiting the opportunities provided by the developments in ICT and the opening-up of Eastern Europe. They have rapidly built up global value chains in order to cut costs by utilising economies of scale and comparative advantages. Furthermore, they have constructed production facilities abroad in order to satisfy local demand better by tapping local (frequently cheaper) production factors and country-specific expertise, which has also boosted their local brand perception and was partly also required for regulatory reasons. Moreover, they benefited from the aspiring emerging economies wanting precisely those capital goods in which German manufacturers had a strong market position;
  • The resulting sharp increase in German exports led to the rising openness of the German economy. At 45% it is much higher than that of other large developed economies (OECD countries, including all developed nations, less than 30%). The excellent positioning of German firms ensured that the weak demand from the Eurozone since the beginning of the sovereign debt crisis was more than cancelled out by the rise in exports to third countries. "In the meantime some 65% of exports are supplied to countries outside the Eurozone, 10%age points higher than at the end of the 1990s";
  • The high level of openness means that the German economy benefits more than other countries during good times from the global economy, but in turn when there is a downturn it is hit much harder — as shown by the 18% slump in German exports in the crisis year 2009. The moderate global upturn expected during the course of 2015 is likely to be more beneficial for German exporters than for their counterparts in the other major Eurozone nations (France, Italy and Spain), as investment demand rises again when the economy picks up and the interconnectedness of the manufacturing sector means the production of intermediate goods is also likely to accelerate. The shares of exports constituted by capital goods and intermediate goods in Germany are relatively high at 45% and 31% respectively;
  • Deutsche Bank says that the major importance of often customer-specific capital goods for German exports relieves the price pressure on many companies in international competition. The demand for special machinery or premium cars is less price elastic than with standardised consumer goods. Exchange rate shifts are thus less relevant in this segment, especially as there are often no substitute products for many German export products —at least in the short term. "Evidence of this is provided by the self-assessment of companies that participate in the quarterly “European Commission Business and Consumer Surveys” for the manufacturing sector and are questioned about their “competitive situation in the last 3 months outside the EU.” In Germany there is a much weaker correlation between companies' assessment of the competitive situation and the exchange rate level. This is also the case in Spain. In France and Italy, however, the correlation is much stronger.
  • The correlation between the competitive situation and global output, by contrast, is much stronger in Germany than in other major Eurozone nations. This shows the reliance of German exports on the spread of globalisation, which
    accompanied strong growth in global trade. "We also find that the correlation between the change in exports to countries outside the Eurozone and global production is stronger than in the other major Eurozone countries and the correlation with the nominal exchange rate is weaker."
  • The lesser significance of the exchange rate is probably also a reflection of the fact that many German firms (especially those in the automotive industry) were particularly active in setting up global value chains and expanding local manufacturing. German firms are thus used to responding to exchange-rate-driven “disruptions” to their complex production structures spanning numerous countries and are constantly optimising them. The import share of German exports in 2010 was 43.4%.

Germany and the structural decline in global trade - Part 2

Germany's surplus

Destatis reported last month that Germany exported 39% of all the goods and services it produced in 2014. Total export sales came to €1.133tn and gross domestic product (GDP) was €2.903tn.

Total imports were valued at €916.6bn. At €216.9bn, Germany's trade surplus overtook the previous record of €195.3bn in2007. As a ratio of GDP, Germany's 2014 trade surplus was 7.5% while China's trade surplus in 2014 amounted to 2,349bn yuan (US$347bn at current exchange rates), or 3.7% of China's GDP.

Deutsche Welle says problems can arise when one country consistently runs a trade deficit vis-à-vis another country — as many countries do with Germany. Too much private debt can build up, eventually leading to difficulties in repaying it.

DW says that in 2014, German companies sold €34.9bn worth of goods and services to customers in Spain, but Spanish companies sold only €25.0bn worth of goods and services to Germany. That left Spaniards owing a total of €9.9bn more to Germans at the end of 2014 than they did the year before. Spain has been running trade deficits with Germany for many years, so Germans have accumulated a large net financial position vis-à-vis Spain.

From the point of view of private German businesses and households involved in trade with Spain, the trade surplus with Spain takes the form, initially, of an increase in financial savings. There are three things that the Germans holding those savings can do with them: Spend on consumption, spend on domestic business investment, or spend on foreign investments — for example, by buying shares of corporations in France or buying land in Spain.

"Germans have invested a lot of their surplus earnings over the years in buying foreign assets," DW quotes Heike Jöbges, an economist at the Berlin School of Economics and Law, who has studied the country's trade imbalances and investment flows. "On the whole, those investments have lost money."

Because of exchange rate depreciations as well as losses on paper assets like US sub-prime mortgage bundles in the wake of the 2008 financial crisis, the portfolio value of Germans' assets is only two-thirds what the buyers originally paid for it.

However, it's not clear that the surplus would not have remained high if most investments of surplus cash had been made domestically.

Germany's trade surplus is a problem - Ben Bernanke, ex-Federal Reserve chairman, Brookings Institution, April 2015

Related Articles


© Copyright 2015 by Finfacts.ie

Top of Page

EU Economy
Latest Headlines
Spain's strong recovery to slow in the next few years
Italy's Mezzogiorno is Achilles' heel of Euro Area - lowest birth rate since 1862
Euro Area GDP grows at weak 0.3% in Q2 2015
German GDP up 0.4% in Q2 2015; France's GDP stagnates
Germany's Surplus: Lots of critics; Credible solutions scarce
Euro Area industrial production dips in June and May after a flat April
Greece faces two years of recession according to EU officials
High EU youth unemployment rate not as bad as it seems
Eurozone retail PMI surges to highest since January 2011
ECB monetary policy still tight for Southern Europe
German exports fell in June — surplus at record; Exports up 13.7% year-on-year
Eurozone manufacturing sector continued to expand in July
Weak euro unlikely to have significant impact on Euro Area growth
Is Euro Area Ireland's top trading partner?: EU28 is overwhelmingly UK's
German car firms boost exports from Spain, UK, Portugal, Czech Republic, Slovakia, Hungary and Romania
Flash Eurozone manufacturing/ services PMI close to four-year high despite Greek crisis
Krugman calls euro a Roach Motel; Hotel California gets 1-star grade
Greece & Euro Crisis: July 2015 articles from Finfacts
Greece and other poor countries in Euro Area will not become rich
Euro Area manufacturing/ services PMI hits four-year high in June
Western European car market: Recovery continues
Greece could become a failed state like Venezuela
Multinational companies pay on average 30% less tax than domestic competitors in EU
EU's list of 30 tax havens omits the biggest 4 in Europe
China to invest in Juncker's European investment fund
Greek talks collapse; Game theorists gambling with future — Germany's vice-chancellor
German exports and industrial production in strong rises in April
Tackling Inequality: Scandinavian countries have the most successful welfare systems in Europe
Eurozone unemployment fell by 130,000 in April 2015 — down 849,000 in 12 months
Eurozone service sector business activity slowed during May
German 2015 GDP forecast cut; Jobless level at 24-year low
Eurozone manufacturing in modest acceleration in May
FDI into Europe at record in 2014; UK on top: Germany location for future investment
Eurozone economy loses growth momentum; Jobs growth rises
Athens leak suggests Juncker has plan for Greece
Draghi will not end QE early but warns of risks
Eurozone grows faster than US and UK in Q1 2015
German GDP at slower pace, France faster in Q1 2015
Germany may cut income tax; Germans still shun risky investments
Germany had record exports and imports in March 2015