As the graph above shows German trade has recovered since the start of the year, although exports and imports remain well below their March 2012 levels. Exports have recovered slightly quicker allowing for Germany’s significant trade surplus to widen further.
But where is this new demand coming from? The eurozone remains mired in recession, so there is little chance that the turnaround in trade is being driven within the single currency bloc. Looking at the graph below may provide some clue.
As we can see, of Germany’s top trading partners only five on the import side and four on the export side are from within the eurozone. These are from the end of last year, but with growth in the US picking up and Asia still doing relatively well, it’s likely that much of the upswing in German trade was with these countries rather than the eurozone. This is confirmed to some extent by the table below which shows that trade with non-euro EU countries and third countries was either positive or less negative relative to a year ago.
What’s the significance of all this?
- Firstly, it raises interesting questions about Germany’s role in the eurozone and the crisis. Trade with eurozone countries, especially those in the periphery, is becoming less important for Germany on both the export and import side. The knock on conclusion of this is that even if Germany were to boost domestic demand or import more (as many southern European leaders have called for) it’s not clear it would actually have a huge benefit for the struggling country.
- A report by Deutsche Bank in February found that an additional 1% growth in German GDP would only provide a 0.1% boost to the current account of struggling economies. Far from enough to have any material impact on overcoming the crisis.
- The second interesting point, in terms of the UK-EU debate, is that Germany is proving incredibly successful in cultivating trade with countries outside the EU, despite at times a stifling European regulatory environment (including meddlesome EU rules) and the eurozone crisis. This is likely due to its focus on manufacturing and its strong ‘Mittelstand’ (the undervalued euro also helps). In turn, this suggests the choice presented by some - either you trade with the EU or you trade with the rest of the world - is clearly false. Warts and all, you can cultivate trade with the rest of the world from within the EU - what you need is economic assets which appeal to these fast developing economies. And of course, a more, liberal, outward-looking EU would certainly help as well.