Germany’s export strength – bad for Europe?

The high level of competitiveness and the high current account surpluses of the German business sector have been criticised abroad and especially within the eurozone. The main points of criticism are:
  • Germany is too focused on its export industry and widely ignores domestic demand and private consumption.
  • The wage restraint has led to inappropriately low wages, which reduced unit labour costs and allowed Germany to dump goods on eurozone member states’ markets.
The rise of the export share serves as a proof for the imbalances in foreign trade. The export share sky-rocketed from 22 % of gross domestic product (GDP) in 1995 to 47.4 % in 2018 (Destatis, 2019).

Mistake: Germany’s consumption is low.
  • As in previous years private consumption is one of the main pillars of economic growth (Annual Survey 2019/2020, Council of experts).
  • Based on good frame conditions like the high employment rate, grown wages, but also the expansive fiscal policy, private consumption is a major growth driver.
  • According to the Annual Survey 2019/2020 (2019) domestic demand will contribute 0.6 percentage points to GDP growth in 2020. Due to strong imports foreign trade is expected to dampen GDP growth by 0.5 percentage points.

Fact: Germany’s export growth is driven mainly by non-eurozone countries.
  • Although Germany’s exports to partner countries within the eurozone have risen since the introduction of the euro, Germany’s exports to countries outside the eurozone have risen much faster.
  • Germany’s export of goods to the eurozone was worth 492 bn. € in 2018 Countries which do not belong to the EU or the eurozone received goods worth 539 bn. € (Destatis, 2019).

Fact: German imports from eurozone members are rising.
  • Germany’s imports from eurozone countries have increased substantially over the past years.
  • German imports from eurozone countries ended the year 2018 by 31.8 % higher compared to the beginning of the recession at the end of the year 2007 (Destatis, 2019).
  • 44 % of Germany’s imports originated from eurozone member states in 2007. This has fallen to round 37.2 % in 2018 only because the imports from the rest of the world increased even more (Destatis, 2019).
  • More and more German companies import intermediate goods from eurozone countries. Because increasingly more final products are exported to emerging markets, our partner countries in the eurozone are benefiting from Germany’s strong export economy, too. Thus, by rising German exports import numbers from the eurozone are rising as well. A 10 % increase of German exports leads to a 9 % increase of intermediate goods imports to Germany from other EU-Member-States (IW Cologne, 2013).
  • Globalized economies are strongly affected by global value chains. Foreign intermediate goods account for 40 % of German exports (Destatis 2019).

Fact: Germany is mainly exporting equipment, which helps our trading partners.
  • Typically, the German economy exports capital goods. By investing in modern machinery and equipment the production potential abroad can be increased.
  • In 2018, Germany’s industrial labour costs continued to increase significantly reaching a level almost one third higher than the average labour costs of the European Union. However, the high quality of German products convinced our trading partners (Eurostat, 2019).

Mistake: Germany’s competitive strength marginalises eurozone members.
  • The table on the left illustrates Germany’s imports from its main trading partners. Apparently, imports from our eurozone partner countries significantly rose between 2007 and 2018.
  • In recent years the German collective bargaining parties have ensured that wages generally only rise as strong as productivity improves. Other countries in the eurozone did not follow this principle in the past and have thus weakened their competitiveness.

EU-countries benefit from Germany’s export strength

Germany’s exports to eurozone member states Source: Federal Statistical Office of Germany, 2019

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