Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22
Crypto Investors Stable Coins TERROR as Terra USD COLLAPSEs towards ZERO, Tether Next! - 11th May 22
INFLATION IS KILLING SILVER - 11th May 22
The Dominant Investing Theme of the Decade - 11th May 22
Is Bitcoin Headed to Zero? - 11th May 22
RECESSION RISKS 2023 - 10th May 22
The Future of the Dollar Seems So Bright It’s Blinding Gold - 10th May 22
Take Advantage When Markets Succumb to Fear - 10th May 22
How to Recognize a Less\ Than Obvious Opportunity (In focus: Corn) - 10th May 22
How to Ensure Financial Stability for Your Family - 10th May 22
The Stocks Stealth BEAR Market - 9th May 22
A Strengthening US Dollar Is A Double-Edged Sword - 9th May 22
Making Wise Investment Decisions - 9th May 22
Ways to legalize a Moving Company - 9th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Here’s How Germany Buys Time From China

Economics / Germany Feb 15, 2017 - 01:50 PM GMT

By: John_Mauldin

Economics

BY JACOB SHAPIRO : As we’ve written before, Germany’s economy has avoided problems besetting most export-dependent countries in the last two years.

In 2015, Germany accomplished this by compensating for decreased demand from China by substantially increasing its exports to the United States and the United Kingdom. In 2016, the situation was reversed. Exports to China increased while exports to the US and UK declined significantly.


The most important geopolitical question in Europe this year is whether Germany can stave off a decline in its exports for a third consecutive year.

We forecast that German exports will fall in 2017, and the most recent trade data released by the Federal Statistical Office (Destatis) both supports and challenges the thought process behind that forecast.

Looking at the Numbers

To understand the significance of the change in German trade patterns, let’s go back a few years. 2015 was the first time in 54 years that a country other than France was the top destination for German exports. German exports to the US increased by 18.7 percent in 2015, representing 9.5 percent of total German exports.

Meanwhile, German exports to the UK—the third largest destination for German goods—enjoyed a similarly meteoric rise. Those exports increased by 12.8 percent in 2015, approximately 10.1 billion euros. For the year, 7.5 percent of total German exports went to the UK.

The growth in German exports to the US and the UK was under 40 percent of the total growth in value of German exports in 2015. This was important because Germany saw major declines in exports to two important trading partners in 2015: China and Russia.

The decline in exports to China was somewhat modest, with a drop of 4.2 percent, or about 3.2 billion euros. The decline in exports to Russia was starker, declining 25.5 percent from the previous year, or roughly 7.4 billion euros. The increase in exports to the US and the UK absorbed the blow of the unexpected decline in demand from China and Russia.

Germany’s Problem

The problem for Germany was not necessarily the absolute figures themselves. Even without the growth in exports to the UK and the US, German exports increased enough to cover the loss. This was due primarily to demand from other European countries.

The deeper problem was that China and Russia were both important markets that German companies had bet would increase demand for German products.

Exports to China had been steadily increasing since 2001, with a slight hiccup in 2012. Before the 2014 revolution in Ukraine and the 2015 drop in oil prices, Russia was considered one of the top potential growth markets for German products. Exports to the UK and US stabilized the situation, but a serious question remained: Could Germany depend on exporting to the US and UK at similar levels for a sustained period?

The most recent available data from Destatis covers January to November 2016, but it still provides a clear answer to that question: The 2015 level of US and UK imports of German goods was unsustainable. German exports to the UK declined by 3.1 percent in the first 11 months of 2016. German exports to the US declined by double that figure, or 6.2 percent.

Germany saw exports in the first 11 months of 2015 increase by an impressive 6.5 percent. In January to November 2016, growth in German exports was just 0.8 percent. There is one significant bright spot for Germany in the data. German exports to China rebounded in 2016, increasing by 3.6 billion euros, or 5.5 percent year-on-year.

“Changing of the Guard” Myth

This development recently has been trumpeted as a “changing of the guard” in both the German and Chinese press. But even with a 6.2 percent decline, the US remains the largest destination for German exports. German exports to the US in 2016 were worth 66.9 billion euros more than German exports to China. Considering that 46.8 percent of Germany’s GDP comes from exports, the importance of the US to Germany’s export machine should not be underestimated.

The rise in Chinese demand for German exports is slightly surprising considering that Chinese imports have been decreasing steadily since 2011. And Chinese imports of German goods declined in 2015. This decline was in part due to the decline in global commodities prices. The volume of Chinese imports increased even as prices fell from 2011–2014.

This, however, began to change in 2015. A study published last May by the International Monetary Fund noted that the volume of Chinese imports decreased by 0.7 percent in 2015, and that both commodity and non-commodity items contributed to this decline.

The latter category is the important one from the German perspective. The bulk of German exports to China are not raw materials like iron ore, but finished products like cars and various machinery.

Non-commodity imports declined by 8 percent in 2015, 35 percent of which was attributed to a fall in imports of the types of products Germany exports.

More on China

The most recent data available from China’s General Administration of Customs showed that Chinese import growth in 2016 fell by 5.5 percent in terms of value. It was not just Chinese imports that fell, however. Chinese exports also decreased by 7.7 percent year-on-year.

This is important because a significant portion of Chinese imports are not meant for Chinese consumption. They are parts that are used in goods that China assembles and then exports. Whether it is demand for the raw materials or parts involved in production, or just the financial health of the state-owned enterprises involved in exports, a decline in Chinese exports puts further pressure on Chinese imports. This in turn is bad news for a country like Germany hoping to increase exports to China.

The other thing to keep in mind is that China relied once again on stimulus to meet its GDP growth targets for the year in 2016. Much of this economic growth was dependent on construction or investment in the real estate market, which has resulted in fears of a potential bubble in the housing market that China is now actively seeking to rein in.

Meanwhile, corporate debt in China has increased to 169 percent of China’s GDP, according to the Bank of International Settlements. And the specter of non-performing loans is casting a long shadow once more on China’s books.

The Real Picture

China’s solutions are ultimately stopgaps, and steady Chinese demand for German goods is unreliable at best. There are limits to how much Germany can increase its exports to the US and the UK. German trade data also emphasize just how dependent Germany is on the rest of Europe.

It remains to be seen if GPF’s forecast on German exports comes to fruition. But whatever the precise figure of export change ends up being is ultimately less important than understanding this key German weakness. The news that China has become Germany’s largest trading partner should be read as nothing more than a story about the precarious economic situation in which Germany finds itself.

Prepare Yourself for Tomorrow with George Friedman’s This Week in Geopolitics

This riveting weekly newsletter by global-intelligence guru George Friedman gives you an in-depth view of the hidden forces that drive world events and markets. You’ll learn that economic trends, social upheaval, stock market cycles, and more… are all connected to powerful geopolitical currents that most of us aren’t even aware of. Get This Week in Geopolitics free in your inbox every Monday.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in