Oct 12, 2022 - Economy & Business

Germany's incredible shrinking trade surplus

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Germany's once-massive trade surplus has all but melted away, as a result of surging energy costs and the weak economies of its main European trade partners.

Why it matters: The declining surplus shows how disruptions over the last year — Russia's invasion of Ukraine, the related energy shock, and China's COVID lockdowns — are upending the basic rules of how the global economy has worked in recent decades.

Driving the news: Europe's exporting superpower saw its trade surplus slip to €1.22 billion euros in August, the lowest level in over a decade, according to recent data.

What they're saying: "The war in Ukraine has succeeded in delivering what nothing else had managed before: letting the notorious German trade surplus disappear," wrote Carsten Brzeski, head of global macro at ING.

  • "Unfortunately, it is not a ‘good’ disappearing of the trade surplus, driven by stronger domestic demand but rather a ‘bad’ disappearing, driven by high energy prices and structurally weaker exports."

What to watch: Whether this is a moment in which Germany reconsiders the way its economy is structured.

  • Since the early 1990s, Europe's largest economy has relied on exports to provide growth, and has been criticized for designing its economy to skimp on domestic investment and consumption in order to prioritize exports.
  • Critics including Ben Bernanke say Germany has kept wages too low (limiting consumer spending), and that the government hasn't spent enough to boost the economy.
  • Berlin could now be forced to hike domestic spending and government investment to avoid a deep and painful recession.
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