BERLIN- Germany’s recent export slump was driven mainly by weaker sales to Britain rather than the broader trade war, data showed on Wednesday, after Brexit had an unusually big impact on Europe’s largest economy in the second quarter.
Germany’s export-dependent manufacturers are generally suffering from sluggish foreign demand amid a global economic slowdown and rising trade tensions linked to US President Donald Trump’s ‘America First’ policies.
But trade data reviewed by Reuters showed that German exports to the United States actually jumped in the April-June period while foreign sales to Britain nosedived in the same three months.
German exports to Britain fell by nearly 15 percent year-on-year in the second quarter following a Brexit-date related jump of roughly 6 percent in the previous three months, according to trade figures from the Federal Statistics Office.
The German economy grew 0.4 percent quarter-on-quarter in the first three months of the year and shrank 0.1 percent in the second quarter on weaker exports.
In 2018, German exports to Britain accounted for roughly 6 percent of overall foreign sales, making the United Kingdom the fifth most important export destination for German goods producers.
Britain was originally due to leave the EU on March 29, so many companies pulled forward orders and deliveries to avoid possible tariffs in the case of a no-deal Brexit.
However, political deadlock in London forced the British government to ask the bloc for a delay which means that Brexit is now scheduled to take place on Oct. 31.
The pull-forward effect for German exports is likely to repeat itself in the third quarter, according to Ifo President Clemens Fuest.
“The mood among German exporters has brightened somewhat,” Fuest said, pointing to improved export expectations in manufacturing in August.
“This increase is due to companies exporting to the United Kingdom. The threat of a hard Brexit is encouraging UK firms to import much earlier than otherwise.”
A front-loading in the third quarter along the lines of that seen ahead of the originally planned Brexit date could see exports – and the broader economy – take another rollercoaster ride in the second half.
Fuest cautioned that apart from the positive, temporary Brexit effect in the third quarter, the US-China trade war was likely to keep on weighing on German exporters.
But the detailed trade data puts a question mark next to that notion: German exports to the United States, its biggest market outside the bloc of EU countries, rose 3.6 percent year-on-year in the first quarter and 5.1 percent in the second.
German exports to China, another very important market for German carmakers and other manufacturers, rose 6.3 percent year-on-year in the first quarter but growth then slowed to 2.0 percent in the second, the data showed.
Oliver Rakau from Oxford Economics said the overall 1.3 percent decline in German exports in the second quarter was the sharpest decline since the depth of the euro crisis.
“German exporters are clearly suffering from subdued global demand and the elevated uncertainty given the country’s pronounced openness to trade and focus on capital goods,” Rakau said.
But this conventional explanation only goes so far, as German exporters have underperformed their peers in the euro zone by the greatest extent since the global financial crisis.
“The crisis in the German automotive sector and Brexit-related volatility were the key drivers of recent export declines,” Rakau said, adding that automobiles accounted for 90 percent of the overall drop of goods exports from April to June.
Germany’s automobile sector, an important driver of overall growth, is having trouble adjusting to stricter regulation following an emission cheating scandal and managing a broader shift away from combustion engines toward electric cars.
“Meanwhile, UK-bound goods accounted for 70 percent of the decline as the pre-Brexit stockpiling that occurred in Q1 reversed,” Rakau said.
Jens Suedekum, professor of international economics at the Heinrich-Heine-University in Duesseldorf said the main culprits for falling German exports were Britain, with its still unresolved Brexit drama, and the crisis in Italy.
German exports to Italy, the third-biggest economy in the euro zone, stagnated year-on-year in the first quarter and fell nearly 3 percent in the second, the data showed.
“The German export slump is not driven by Donald Trump and the US-China trade war, as one would expect from the theory of trade diversion,” Suedekum said.
“If Germany slides into a recession, blaming it on Donald Trump is nothing but a scapegoat. If anything, the Brexit-impact is much larger. But, above all, it’s home-made!”
This picture could change drastically, however, if Trump decides to act on his threats against Germany and imposes steep import tariffs on European cars later this year. – Reuters