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Analysis
German trade outside EMU grows

German trade outside EMU grows

German current account surplus 7% of GDP
Bundesbank holds 90% of Germany’s net foreign assets

by David Marsh

Tue 16 Apr 2013

All of Germany’s biggest European trade partners are in, or close to, recession. Output in the 17-member economic and monetary union (EMU) contracted 0.4% last year and is likely to fall 0.1% this year, according to latest OECD forecasts. Yet Germany’s current account surplus ballooned to a near-record 7% of GDP in 2012. This is the eighth consecutive year that the surplus has equalled or exceeded the 5% level widely regarded as unsustainably high for any other than leading energy-exporting countries.

A significant reason for the rise in the surplus was weakness in German imports which, according to the Bundesbank, was due to ‘raised uncertainty’ among companies in Germany which might otherwise be importing foreign goods for domestic investment.

However the higher surplus also reflects continued export success: a product of Germany’s economic flexibility and sharp rise in trade with non-euro countries. It results, too, from higher net proceeds from Germany's rising stock of foreign assets.

Germany still relies on Europe for about 69% of its exports. But, strikingly, European states outside the euro – ranging from Russia, Turkey and Poland to the UK, Switzerland and Sweden – now account for nearly as much of Germany’s overall export total as countries within the euro.

Of Germany’s five top trading partners, three are outside the euro: the US, China and the UK. According to the German Federal Statistics Office, on a relatively narrow measurement, Germany’s main five trading partners last year were, in descending order: France (with €169bn), the Netherlands, China, the US and the UK.

However, taking into account more extensive export and import figures (such as goods held in warehouses) from the Bundesbank’s balance of payments statistics, as well as trade in services, the UK comes out on top of the list of Germany’s 2012 trading partners, with an export and import total of €213bn, followed by the US, France, the Netherlands and China.

EMU was supposed to produce economic stability. Yet, five years after the financial crisis, Europe is a cauldron of uncertainty. The sobering truth about the large current account surpluses heaped up by Germany and EMU’s other prime creditor country, the Netherlands, is that Europe’s monetary set-up has consistently produced much larger imbalances than those that caused the collapse of the Bretton Woods fixed exchange rate system 40 years ago.

 

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