Germany is not only the largest, but also one of the strongest economies in the Eurozone and the EU. This is reflected, among other things, in its stable economic growth. In 2017, Germany’s GDP increased by 2.2 per cent compared to the previous year, only slightly less than the total Eurozone growth of 2.4 per cent.
Despite the risks posed by the ongoing trade wars, forecasts predict a comparable growth rate for the current year, with the International Monetary Fund (IMF) expecting a GDP increase of 2.2 per cent in 2018. Germany was already well on the way to achieving this goal in the first half of the year: German economy grew by 0.4 per cent in Q1 compared to the previous quarter; Q2 saw growth of 0.5 per cent. The DIW Institute now expects 0.4 per cent growth for the third quarter.
While higher energy prices have recently dampened consumer sentiment somewhat and inflation remained at a comparatively high level of 2.0 per cent in August, the sentiment among exporters has improved for the second consecutive month. The industry’s Export Expectations indicator, calculated by the ifo Institute on the basis of a survey, rose by 0.6 to 14.4 points in August. Although the number of unemployed individuals in Germany rose to 2.351 million in August, this is the lowest figure for this month since 1991.
One of the German economy’s key factors is the current account. This balances all imported and exported goods and services in an economy against each other. If there is a surplus in a country’s balance, it exports more than it imports. In case of a deficit, on the other hand, more goods and services are imported than exported, i.e. more is consumed than is produced in the country itself. In regards to this balance, Germany is likely be the world leader yet again in 2018, as the German ifo Institute forecasts a current account surplus of 262.5 billion euros (USD 299bn) for the entire year. This puts the country in first place, followed by Japan at a comfortable distance with 200 billion dollars trade surplus.
German industry positive about surplus, IMF and EU Commission skeptical
The reason for Germany’s large current account surplus is the country’s export strength, with the German industry seeing the situation in a positive light. “[The surplus] highlights the performance of German companies and the attractiveness of their products – in a currently difficult international environment, no less,” said Volker Treier, Head of Foreign Trade of the German Chamber of Industry and Commerce (DIHK).
The IMF and the EU Commission, however, are skeptical. The Commission considers a continuous surplus of more than 6% of GDP a threat to stability, owing to the disparity between countries with surpluses and countries with deficits that are indebted. According to the ifo Institute, Germany’s current account constitutes 7.8 per cent of GDP in 2018. Since 2011, the current account surplus has contributed more than six per cent to Germany’s GDP.
Germany has a particularly strong goods trade balance, which is also a thorn in the side of other countries. In recent months, US President Donald Trump has already repeatedly threatened punitive tariffs on Germany’s no. 1 export product, cars. So far, however, he has not followed through on the threats, and after his meeting with EU Commission President Jean-Claude Juncker in July, it is unlikely that he will anytime soon. Under these considerations, it looks like smooth sailing for the German economy for the time being.
Disclaimer:
Forecasts are not a reliable indicator for future developments.