German Trade Surplus Holds Its Higher Ground in February

The German trade surplus in January had surged to nearly €16 billion. In February it had basically held to the gains made in January. The German surplus hit its low point and the later part of 2022 and has since been on the rise. During that time, both export and import growth had fallen very sharply, but import growth had fallen faster than export growth leading to the rise in the surplus.

German nominal exports in February rose by 4% after rising by 2.5% in January. So, the sequential growth rates show a 12-month growth rate in exports of 7.6% over 12 months, at an annual rate of 1.7% over 6 months and then even slower annual rate of 0.8% over 3 months.

German nominal imports rose by 4.6% in February after falling by 1.4% in January. Import growth is at 3.8% over 12 months, weaker then export growth, then declines at a -19.4% annual rate over 6 months. That pace of decline is slightly reduced over 3 months to -13.1% at an annual rate.

On balance, exports show signs of slowing but is still growing in nominal terms while imports are weak and declining over 3- and 6-month horizons.

Converted to real terms, we have export and import data available for January. January real exports grew 3.6% month-to-month while imports were flat. The profile of real export growth shows 12-month real exports up by 1.3%; over 6 months they are up at a 2.5% annual rate, but over 3 months they are falling at a -8% annual rate. Real imports on the same timeline are rising by 0.1% over 12 months, falling at a -9.4% annual rate over 6 months and falling at an even faster -13.5% annual rate over 3 months. The trends in inflation-adjusted trade show much more weakness than for nominal exports and imports, but the imports clearly are weaker than exports on a real basis.

Some analysis seems to focus on the notion that German exports are higher for two months in a row and cite that this is a positive development. While it is, it's not really a very significant development. Back to 2021, there are four episodes of German exports rising for two months in a row. More significant is that back to August 2020, there are only three examples of month-to-month exports rising faster than they have in February. That contrasts with imports that have been extremely weak. Looking at import growth as of January, a month ago, the five-month percent change in imports had been weaker in only seven months back to the year 2000 and those occurred in two episodes, one in the Great Recession, and the other, for just two months during the period of COVID. It's German imports that are extremely weak and helping to drive German net export performance to a higher surplus. German exports have put in a couple of reasonably good months, but nothing all that notable.

As we see, looking at the inflation-adjusted data, a lot of what we find in these trends has to do with inflation doing its work and causing us to make favorable comparisons with the past when looking at growth rates. When reduced to ‘real’ terms, we can see that we have extremely weak imports and still very lethargic exports in Germany. This is not surprising, particularly not after the release of the S&P global PMI data yesterday for manufacturing; they show growing weakness in the global manufacturing sector.

Global challenges to growth abound. They persist in the lingering high inflation rates and the need for central banks to raise interest rates further. The war between Russia and Ukraine drags on, casting a pall over sentiment as it has over the past year. The new kid on the block is concern about banking sector problems, which may or may not be contained. They have their roots in central banks raising interest rates sharply to catch up with inflation after a very long period of very low interest rates having prevailed – more than in bad bank credit decisions. Because banking sector problems are strongly connected to this sharp rise in interest rates and because interest rate increases have been a key feature in western economies, it's reasonable to think that banks are going to continue to have to walk on egg shells for a while longer. This could cause growth to continue to be disappointing and of course would be another adverse factor to expecting export and import growth to pick up. Another adverse factor is the recent decision by OPEC to further cut back oil production, a decision that will raise oil prices, cause importing countries to have larger trade deficits (based on their oil imports), and create more knotty-problems for the development of monetary policy and for the evolution of inflation. The trade picture remains impacted and somewhat confusing clearly pressured by developments in macroeconomic policy globally. This month German trade numbers, improved though they are somewhat encouraging, do not seem to be supported by fundamentally encouraging trends.