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This Chart Explains Why Germany’s Economic Stability Depends On The US

Economics / Germany Jul 03, 2017 - 04:55 PM GMT

By: John_Mauldin

Economics

In our 2017 forecast, we predicted that German exports will fall in 2017, which will weaken Berlin's trade position and slow down economic growth.

However, the latest reports from the German central bank and two other influential institutions have challenged our forecast on two fronts.

First, the German reports say that exports will continue to rise. Second, the German reports insisted that it is the domestic drivers that have made German growth stable.


Where’s the truth?

The Reason German Exports Are Doomed to Fall

Germany’s automotive industry has exported to the US the most in the past decade. Second on the list is industrial machinery. 

But car and industrial machinery sales are in sync with market cycles. A recession in the US will harm both sectors, which account for more than half of German exports to the United States.

Investment appetite relates to a business’s potential for profit and expansion. For that, exports remain key.

The US economy is important to Germany not only because of the two countries’ bilateral trade and investment relations, but also because of its impact on the global system.

The US runs a trade deficit with all of Germany’s main trade partners—an economic decrease in the US negatively affects each of these economies, albeit in different ways. 

It is still too early to conclude whether our forecast on the German economy is correct. Growth patterns in the first quarter can easily be turned by negative developments in the EU, Brexit negotiations, or anything that will cause a downturn in the American market.

One thing is for sure, though. None of the factors are in Germany’s control.

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