Germany Records Largest Global Trade Surplus Three Years Running
(20 Aug 2018 - Germany) Germany is set to record the world's largest trade surplus for a third consecutive year, expected to set a €264 billion trade surplus this year.
The total is significantly greater than its closest export rivals Japan and the Netherlands according to research published Monday by Munich-based economic research institute IFO. The latest surplus figures indicate a slight dip as a proportion of Germany's total economic performance compared to 2017, falling from 7.9 percent to 7.8 percent. The enormous surplus is expected to attract criticism both domestically and internationally as both trade and currency war rhetoric ramps up globally. The US especially has rebuked Germany for its trade surplus, with US President Donald Trump singling out the country as one of the main culprits responsible for America's US$460 billion trade deficit. Trump has threatened to apply tariffs on foreign automobiles in the US given Germany's most important export item are luxury cars such as BMW and Mercedes Benz.
There has also been criticism at home, with several groups demanding that the federal government use its current account surplus to spur consumer demand and stimulate investment. For example, trade unions have long been calling for a rise in wages. IFO’s report takes into account trade in goods, services and income from foreign assets. Trade in goods is the stand out driving factor behind Germany's surplus at over €200 billion, while income from assets is also expected to add up to around €63 billion. Germany is expected to run a €18 billion deficit in services, according to IFO. The latest numbers reinforce Germany's dominant export strength. China is expected to record the largest export numbers overall, but a rise in imports has seen its surplus fall in the first half of 2018.
Germany's huge surpluses in global trade are not only part of US President Donald Trump's sharp rhetoric in his campaign against this country's exports. Now, even the IMF sees them as a reason for current trade tensions. Germany's hesitancy to reduce its trade surplus was contributing to trade tension and added to risks that could undermine global financial stability, Maurice Obstfeld, chief economist at the IMF said. German firms are estimated to employ a million people in China and more than 850,000 in the US. Nevertheless, Germany's surplus still exceeds the six percent amount deemed by the EU and IMF as sustainable over the long term, given that one country's surplus is another's deficit and debt. "Sustained high trade surpluses can become problematic if the receivables cannot be paid — for example if foreign countries are no longer able to meet the interest burden," IFO expert Christian Grimme stated.
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