Blog Post

The German trade surplus may widen with the euro-area recovery

An increased demand for German exports may well lead to an increased overall German trade surplus, unless German domestic demand increases significantly.

By: Date: November 7, 2013 European Macroeconomics & Governance Tags & Topics

The German current account surplus has given rise to much controversy following the recent US Treasury report, which criticised Germany for its persistent surplus (see yesterday’s Bruegel Economic Blogs Review). Let me contribute to the debate by showing two charts on German and Spanish trade developments, which suggest that the German trade surplus may widen further when the euro area’s cyclical position improves.

Bilateral current account balances between countries are generally not available, but bilateral trade balances of goods are, which account for a significant portion of the current account balance in Germany and Spain. Here is the geographical composition of the trade balances of Germany and Spain:

Chart 1: German and Spanish trade balances with different regions (% GDP), 1999Q1-2013Q2

Sources: Monthly seasonally adjusted trade balances of goods: Eurostat (“Member States (EU27) trade by BEC product group since 1999 [ext_st_27msbec]”). GDP: Annual current price GDP: AMECO.

Note: We converted monthly trade balances and annual GDP figures to the quarterly frequency. Before calculating the trade balance/GDP ratio, we filtered the GDP series with the Hodrick-Prescott filter (with smoothing parameter 1). Thereby, short-term fluctuations in GDP do not impact the trade balance/GDP ratio we report. In a post last year I showed an earlier version of this chart using annual data up to 2011.

By 2013, Germany’s trade surplus and Spain’s trade deficit with the rest of the euro-area have been eliminated (Spain has a small surplus with the euro area now). At the same time, Germany could increase her surplus with non-EU countries, which helped to keep the overall trade surplus at a high level. The big question is the cause of this increased surplus with non-EU countries: was this just the result of a substitution away from the euro area to the rest of the world at a time when demand in the euro area plummeted? Or has weak German domestic demand played a major role?

A well specified macroeconomic model could help to answer this question, yet we can get an intuition by plotting German export and import data.

Chart 2: German exports to, and imports from, different regions (% GDP), 1999Q1-2013Q2

Source: see at the previous chart.

With respects to euro-area partners, both German exports and imports have declined significantly during the past three years, reflecting the falling demand in the euro area. With respect to the ten EU countries outside the euro area, there was a small decline in both exports and imports during the past three years, yet it is remarkable that the German trade balance as a percent of GDP has not much changed during the past 5 years, as indicated by the first chart. The economic situation in these ten countries was diverse (e.g. compare the UK and Poland), but on average was somewhat weak, though not as much as in the euro area.

The most interesting panel is the third one, which shows that German exports to countries outside the EU have increased rapidly, but German imports from these countries have fallen recently. This suggests that weak German demand should have played a role.

Going forward, there is a risk that the German trade surplus may widen further. As highlighted by Wolfgang Münchau in the FT, the IMF concluded in its recent World Economic Outlook (see Box 1.3) that cyclical factors explain a significant share of the current account reversals in vulnerable euro-area members and their “current account deficits could widen again significantly when cyclical conditions, including unemployment, improve, unless competitiveness improves further.” The three Baltic countries may provide examples: these countries went through a much faster economic contraction (accompanied by a rapid move from double-digit current account deficits to current account surpluses), but as they started to recover, their current account surpluses turned to (small) deficits. A re-emergence of current account deficits in southern euro-area members, which would be reflected in their worsened trade balances, should be filled with foreign supply of goods and services. Germany is of course a major candidate to fill such a gap, due to geographical closeness and trade links. An increased demand for German exports may well lead to an increased overall German trade surplus, unless German domestic demand increases significantly.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read about event

Upcoming Event

Sep
6-7
09:30

Bruegel Annual Meetings 2016

The Annual Meetings are a high point in Bruegel's calendar.

Speakers: Michel Barnier, Joachim Bitterlich, Arnoud Boot, Albert Bravo-Biosca, Elmar Brok, Nadia Calviño, Tom Carver, Daniel Daianu, Zsolt Darvas, Paulina Dejmek-Hack, Jeroen Dijsselbloem, Alicia García-Herrero, Sylvie Goulard, Charles Grant, Dominique Guellec, Connie Hedegaard, Michel Houdebine, Vazil Hudák, Brigitte Knopf, Pascal Lamy, Lawrence J. Lau, Matthew Lobner, Robert Madelin, Sylvie Matherat, Simone Mori, Erik F. Nielsen, Barbara Novick, Jean Pisani-Ferry, Romano Prodi, Olli Rehn, Carmen M. Reinhart, André Sapir, Dirk Schoenmaker, Ludger Schuknecht, Egon Schulz, Maroš Šefčovič, Jeremy Shapiro, Scott Stern, Jean-Claude Trichet, Laszlo Varro, Nicolas Véron, Reinhilde Veugelers, Helen Wallace, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Autoworld, Brussels, Belgium
Read article More on this topic More by this author

Blog Post

IMG_1985

How to make the single market more inclusive after Brexit

The creation of the single market generated winners and losers. Yet redistribution remains first and foremost a competence of national governments. It is thus fair to state that a failure in national, more than European, policies and welfare systems can be partly blamed for current discontent with the EU and the single market.

By: Alessio Terzi Topic: European Macroeconomics & Governance Date: August 18, 2016
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

The state of macro redux

What’s at stake: In 2008, Olivier Blanchard argued in a paper called “the state of macro” that a largely shared vision of fluctuations and of methodology had emerged. With the financial crisis and our inability to prevent the greatest recession since the 1930s, the discipline entered into a period of soul searching. The discussions on the state of macro received new echoes this week after Blanchard published a short essay on the future of DSGE models.

By: Jérémie Cohen-Setton Topic: European Macroeconomics & Governance Date: August 16, 2016
Read about event More on this topic

Upcoming Event

Sep
29
08:30

Inclusive growth in the European Union

Why is inclusive growth important and how do the EU’s social problems differ from social problems in other parts of the world?

Speakers: Zsolt Darvas, Monica Brezzi, Jana Hainsworth, Reinhilde Veugelers and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Oct
4
12:30

Barriers to long-term investment

Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Opinion

Dalia Marin

What’s the matter with Austria?

Austrian firms invested heavily in Central and Eastern Europe. They offshored the parts of the value chain that required specialized skills and produced valuable research. This resulted in lowered growth in Austria.

By: Dalia Marin Topic: European Macroeconomics & Governance Date: August 9, 2016
Read article More on this topic More by this author

Blog Post

André Sapir

Should the UK pull out of the EU customs union?

The UK Government appears divided on whether the United Kingdom should seek to remain within the European Union’s customs union after Brexit. The United Kingdom is likely to want to leave the customs union, even it remains in the EU’s single market. But the UK should try and keep to the EU’s commitments at the WTO, at least at the start, in order to minimise the trade disruption that Brexit entails.

By: André Sapir Topic: European Macroeconomics & Governance Date: August 1, 2016
Read article More on this topic

Opinion

Grégory Claeys
Schoenmaker pic

Now is the time to open Strasbourg’s ‘Bronislaw Geremek’ European University

It is the right time to revive the proposal made 10 years ago by Bronislaw Geremek and Jean-Didier Vincent to create a truly European University in the European Parliament buildings in Strasbourg.

By: Grégory Claeys and Dirk Schoenmaker Topic: European Macroeconomics & Governance Date: August 1, 2016
Read about event More on this topic

Upcoming Event

Nov
21-22
13:30

Vision Europe Summit 2016

The 2016 Vision Europe Summit is titled "Redesigning European Migration and Refugee Policy" and will be held in Lisbon on 21-22 November 2016.

Topic: European Macroeconomics & Governance Location: Lisbon
Read article More by this author

Blog Post

Zsolt Darvas

Single market access from outside the EU: three key prerequisites

In relative terms, Norway’s current net financial contribution to the EU is similar to the UK’s. Switzerland and Liechtenstein pay surprisingly little, while Iceland is a net beneficiary. Relative to their population, Switzerland, Norway, Iceland and Liechtenstein received about twice as large an inflow of EU immigrants as the UK. These countries also have to adopt the vast majority of EU regulation to gain access to the single market.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: July 19, 2016
Read article More on this topic More by this author

Opinion

Guntram B. Wolff

The difficulties of defining EU-UK economic relations

Negotiations on the UK's exit from the EU have not yet begun, but the UK leadership needs to find a balance between single market access and free movement. There are also tensions between the demands of voters and what EU partners can plausibly agree. Guntram Wolff doubts the likelihood of a Norway- or Switzerland-style deals, and urges caution on all sides.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: July 19, 2016
Read article More on this topic More by this author

Blog Post

Marek Dabrowski

Iran: from isolation to economic cooperation

With some sanctions temporarily lifted, now is the chance for Iran to reintegrate into the global economy and political system. But comprehensive economic and political reforms are needed.

By: Marek Dabrowski Topic: European Macroeconomics & Governance Date: July 15, 2016
Load more posts