German Trade Surplus Widens to €22.5 Billion in August as Imports Slump

German Exports Surge, but Import Slump Fuels Recession Fears

On Wednesday, October 9, the German economy was back in the spotlight following the latest private sector PMIs.

The trade surplus widened from €16.9 billion in July to €22.5 billion in August. Economists had anticipated the trade surplus to widen to €18.4 billion in August.

Significantly, exports rose by 1.3% in August, contrasting with a 3.4% slide in imports.

According to Destatis,

• Exports to EU states increased by 0.8%, while imports declined by 3.7%.
• Within the Eurozone, exports rose by 0.6%, contrasting with a 7.2% slump in imports.
• Exports to countries outside the EU (third countries) increased by 1.9%, while imports fell by 3.2%.
• Exports to the US were the main contributor to total exports, surging by 5.5%. Additionally, exports to China rose by 1.9%.
• Germany imported most goods from China, though imports from China declined by 1.4% in August.

German Trade Data Raises Recession Red Flag

Factory orders in June and July boosted industrial production in July and August, supporting the upbeat export figures.

However, August’s trade data may fuel expectations of a Q4 2024 German economic contraction. While exports increased by 1.3%, imports signaled a likely slump in demand, possibly impacting future production and export trends.

The German economy remains heavily dependent on trade. Recent factory orders and private sector PMI data align with the slump in imports, signaling weaker demand. A marked deterioration in demand could bolster expectations of an economic contraction in 2024.

Factory orders tumbled by 5.8% in August, while the HCOB Manufacturing PMI fell from 42.4 in August to 40.6 in September. According to the September PMI survey, new orders declined at the most marked pace since October 2023 as overseas orders fell sharply.

Germany’s economic woes could impact the broader Eurozone economy, another likely concern for ECB policymakers.

Expert Views on the German Economy

Hamburg Commercial Bank Chief Economist Dr. Cyrus de la Rubia recently commented on Germany’s manufacturing sector and exports, stating:

“What is particularly troubling, looking back over the last 30 years, is how long this slump in export orders has dragged on – it is unprecedented. We attribute this to the “China shock.” Many companies, especially in the automotive and mechanical engineering sectors, have not yet found convincing answers to the sudden intensification of competition.”

ECB Monetary Policy Impact Analysis

The ECB may look beyond the headline trade data and consider import and export trends. A continued pullback in demand for German goods and services could further pressure the ECB to deliver multiple Q4 2024 rate cuts.

EUR/USD Reaction to German Data

Before the German economic indicators, the EUR/USD climbed to a high of $1.09807 before falling to a low of $1.09616.

However, following Germany’s trade report, the EUR/USD dropped from $1.09728 to a low of $1.09652.

On Wednesday, October 9, the EUR/USD was down 0.12% to $1.09660.