Source: Federal Ministry of Finance, photo: Ilja C. Hendel
German Current Account Surplus is Nothing New
With the German current-account surplus coming under scrutiny by the new US administration it is worth considering recent developments within the German trade balance looking at factors which might impact future negotiations between the US and Germany.
Firstly, it is worth noting that the German trade surplus isn’t new. Before the reunification of Germany in 1990, the surplus stood around 5% of GDP. The economic boom, especially the strong domestic demand fuelled by the reunification, caused a surge in imports which weighed on the surplus for a number of years. During the 1990s, Germany also suffered a loss of competitiveness linked to policies aimed at stoking East German incomes up to West German levels. Consequently, Germany ran a current-account deficit between 1991 and 2001.
Current Account Surplus Has Risen Post-Crisis
It was only in the early 2000s that the current-account surplus returned, reaching an average of 8.5% of GDP in 2016. Incredibly, the current account surplus was unharmed by the crisis in 2008/09, despite demand in other European countries being weighed down by the crisis. During this period, exports to countries outside the Eurozone began to rise, compensating for the lack of demand from neighbouring countries, fuelling a surge in the German current account surplus.
Read more: https://www.orbex.com/blog/2017/03/examining-the-german-current-account-surplus/