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.
Seen the size of the market per country imho it should be looked at from country to country (at least as well as looking at it as a block, or in another way even 2 blocks).
ReplyDeleteBasically The South EZ can be given up as far as growth is concerned. The North will suffer from that (and take a hit in potential growth), but will likely survive. So within the EZ more focus on the North.
Growth in the EU will probably be mainly Eastern (after that Northern) and the less related with the EZ the better.
It will be nearly impossible to go without Europe. Everywhere on the world it shows that successful international trade will for a large part be with neighbours (whther you like them or not). Good to put the stress somewhere else, but Europe will remain under any realistic scenario the no 1 trading region (and by far).
UK should focuss more for Europe on services and modern business like IPRs. And not about hamsters, wisents and wolfs and agriculture. Another big structural mistake the UK has made the last decades. They simply didnot have the priorities right in that respect as well (as well as on democracy).
Of course Germany will change its trade patterns from Europe to elsewhere. They have sucked Europe dry, and the other European nations' economies have been destroyed. They can less and less afford German goods, and cannot make anything they can sell in Germany. They will be forced to look elsewhere. And so should we. As Churchill said, if we ever have to choose between Europe and the Deep Blue Sea, we must always choose the Sea.
ReplyDeleteIf Germany is "proving incredibly successful in cultivating trade with countries outside the EU", then the European regulatory environment can't be "stifling". Perhaps the reason for Germany's success at exporting, and Britain's relative failure, has less to do with regulation and more with factors such as a skilled workforce, capacity for innovation, competent management and long-term planning and investment. Why doesn't Open Europe ever address these issues? Making the EU a scapegoat for failures which are our own responsibility is just a cop-out
ReplyDeleteDear Crapshooter, my company exports 80% of our product. Virtually none to the EU. Almost all to the real world. We compete with Germans with no problem. We compete with Chinese, and have just built an aircraft hangar in Ulan Batoor. We do not need a lesson on skills, management, planning and investment thank you.
ReplyDeleteRollo
Congratulations, Rollo, on your company's sucess. Obviously Britain's membership of the EU is not stopping you from selling to non-EU markets.
ReplyDeleteThere are other successful British firms, big and small. But it doesn't alter the fact that overall Germany is better at exporting than we are. So it makes sense to ask why. Whatever the reason, it's nothing to do with the EU as we're both sublect to the same EU rules.