Germany’s trade balance keeps down-performing, caused by Russia’s energy war, China’s socioeconomic shift, and its position in the EU.
In May, the German current account missed expectations, worsening Germany’s already bleak recession. The trade surplus in May amounted to €14.4 billion compared to €17.5 billion predicted.
The trade surplus is the difference between exports and imports. Advanced European economies like Germany usually have a positive current account, meaning they export more than they import. By comparison, the United States has pursued a negative current account strategy, importing more than exporting.
The United States switched to a negative current account strategy once its evolution to a service-based economy was completed. Furthermore, the US dollar as a global reserve currency helped them survive decades of negative current account imbalances.
Germany, on the other hand, relies on its powerful manufacturing and advanced industry to remain Europe’s economic powerhouse. A reduction in their industry output would lead to fewer exports, and therefore a slow collapse of their entire economic system.
Indeed, Germany’s industrial output has fallen to decades-low levels. Its pharmaceutical industry alone, one of Germany’s most profitable, lost 8% of its production in 2022.
Germany’s whole industry output fell 2.1% in March, and the latest recession will only make matters worse.
Germany in the global economy
German exports are also influenced by China’s socioeconomic shift. Following last year’s harsh zero-Covid restrictions, China decided to focus on internal demand and domestic manufacturing.
Chinese manufacturing is becoming increasingly more competitive, slowing down imports from Germany. In 2021, Chinese imports from Germany amounted to $120 billion. In 2022, that figure dropped to $111. In the first quarter of 2023, Chinese imports from Germany fell 10.5%.
Finally, an obvious driver of German industrial stagnation is the energy war waged against Russia. In 2021, over half of German gas was imported from Russia, a transaction that came to a grinding halt following Putin’s invasion of Ukraine.
Without Russian gas, German industries are struggling to stay active. And the situation could only worsen as Germany shut down its remaining nuclear power plants in April.
A collapse of Germany’s economy is certain to bring the entire European Union down as well. While the EU will struggle to find a new balance, the United States and China will continue to grow unabated.
The European Union risks losing its already uncertain place in the world, falling victim to authoritarian states on the other side of the globe.
Decades of wrong decisions in Germany brought the entire European Union to a long-term crisis. The only way to solve it will be to act in unity, but will EU members realize it?
