Some relief but no reason to cheer. February trade data just showed that the German export sector still struggles to gain momentum. After four declines in the last six months, German exports increased by 1.3% MoM in February. As imports only increased by 0.4% MoM, from 1.3% MoM in January, the seasonally-adjusted trade balance improved to 20.3 bn euro, from 13.4 bn in January.
German exports have lost parts of their magic and strength. In the past always a reliable growth engine, net exports on average did not contribute anything to quarterly GDP growth over the last two years. In 2015, net exports even were a drag on growth. So much about export world champion. The weaker euro was only partly able to cushion the negative impact from weaker external demand, particularly from China and oil-exporting countries. The negative impact from low oil prices on the German economy through weaker exports is mainly felt in the manufacturing sector.
Looking ahead, it does not look as if exports would quickly return as a powerful growth engine. Foreign orders have dropped by more than 7% since last summer, further reflecting a broader weakness in Germany’s main trading partners. Moreover, the tailwinds of the weak currency are also fading away. Since late-November, the euro has appreciated by more than 6 ½% vis-à-vis the US dollar. At the same time, the trade-weighted exchange rate appreciated by some 5%. This strengthening of the exchange rate should also affect German exports in the coming months.
With strong consumption, a booming construction sector but stagnating industry and exports as well as a reprimand from international institutions to finally step up reform efforts, the Eurozone’s largest economy is losing some of its luster. Admittedly, it is a bit tongue in cheek, but after this week’s macro data, one could even start to think the Eurozone periphery these days starts in Germany.