BERLIN: German exports plunged in August by their largest amount since the height of the global financial crisis and leading institutes cut 2015 growth forecasts in the latest sign that an emerging market slowdown is hurting Europe’s largest economy. The institutes stuck to their forecast for 1.8 percent growth next year, however, saying private consumption, boosted by low unemployment, strong wage gains and a positive impact from refugees, would offset the weaker export momentum.
A stream of negative headlines, from weak industrial orders and output data to Volkswagen’s emissions scandal and Deutsche Bank warning of a 6 billion euro pre-tax loss in the third quarter have raised the risks of disappointing Q3 growth. “Given the recent spate of poor August data, the latest trade numbers are not such a big surprise and remain consistent with our view that Germany is facing significant headwinds from weakening global demand,” said Philippe Gudin of Barclays. “Risks are clearly tilted to the downside.” Seasonally-adjusted exports dived 5.2 percent to 97.7 billion euros month-on-month, the steepest drop since January 2009, data from the Federal Statistics Office showed. Imports tumbled by 3.1 percent to 78.2 billion euros, the biggest one-month decline since November 2012. Germany’s trade surplus narrowed to 19.6 billion euros.
Economists polled by Reuters had been expecting much smaller declines in exports and imports of 1.2 percent apiece and a trade surplus of 22.5 billion euros. Although the weak trade numbers were partly due to an unusually large number of holidays falling in August, waning demand from abroad, particularly China and other emerging markets, is beginning to leave its mark. “Weakness in China, Brazil, Russia and other markets is having an impact,” said Holger Sandte, chief European economist at Nordea.
The German economy has posted four straight quarters of growth since a mild contraction in the second quarter of 2014, expanding by 0.4 percent in April-June. Germany’s leading economic institutes said they also see third quarter growth of 0.4 percent but cut their growth forecast for the year as whole to 1.8 percent from 2.1 percent, citing weakness in China and other emerging markets. The International Monetary Fund cut its global growth forecast for the second time this year on Tuesday, also citing the slowdown in China, the world’s second biggest economy, as a factor.
A fall in Chinese demand would hit Germany’s auto industry especially hard as it sells more than 10 percent of its exports there, said the institutes. “This is important as this key sector is already subject to great risk due to the scandal about the manipulation of emissions tests,” their report said. The diesel emissions scandal engulfing Germany’s biggest carmaker Volkswagen has raised wider fears that the country’s biggest export industry, which accounts for roughly one in five jobs.
European Central Bank policymakers were warned in September of risks to the euro-zone economy from a slowdown in emerging markets led by China, seen until recently as the world’s main economic engine. The concerns were expressed at the ECB’s Sept. 2-3 policy meeting, minutes of which were published yesterday, days after the International Monetary Fund cut its global growth forecasts, pointing partly to China. ECB chief economist Peter Praet told the meeting in Frankfurt that “challenges facing emerging market economies were clouding the global outlook and were unlikely to recede quickly,” the minutes said. “Although it was still premature to conclude whether these developments could have a lasting impact on euro area output and … inflation, downside risks had intensified.” That may indicate that the ECB will not rush into further money-printing stimulus. The auto sector made up 17.9 percent of Germany’s 1.1 trillion euros ($1.25 trillion) in exported goods last year, according to Deutsche Bank, and has enjoyed above-average export growth since. The head of the DIW institute said given VW’s size, the scandal would reverberate in the wider economy and risked tainting the ‘Made in Germany’ label. “The numbers are simply gigantic, so that problems in that field have consequences,” said the DIW’s Ferdinand Fichtner. “I feel comfortable calling it a certain negative risk to exports, though I can’t say to what degree.” But the institutes highlighted the potential upside of the record influx of refugees to Germany. They expect 900,000 refugees in Germany this year and 600,000 next. — Agencies