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Germany’s vaunted trade surplus disappears as import prices rise

Germany’s trade entered negative territory in May, raising questions about the stability of its economy following Russia’s invasion of Ukraine.

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Germany no longer exports more than it buys from other countries, highlighting the strains the nation and other European economies are facing due to soaring energy prices and foodstuffs.

Data released on Monday showed that in May, Germany recorded a foreign trade deficit of 1 billion euros ($1.03 billion). This marks an important moment for the German economy, which had recorded trade surpluses for several decades. Bloomberg reported that 1991 was the last time the country reported a monthly trade deficit.

Its high level of exports had been an important economic driver and the trade surplus was even attacked by former President Donald Trump, who wanted Americans to buy more US-made goods.

“Germany’s much-vaunted trade surplus is gone,” Carl Weinberg, chief economist at High Frequency Economics, said in a note on Tuesday, adding that “rising prices for energy, food and materials imports increases the import bill”.

German exports in May were still 11.7% higher than a year ago, according to the country’s statistics office, although down 0.5% from the previous month.

However, the import bill has increased by 27.8% compared to a year ago and it is no longer compensated by its overseas sales.

Germany – like many other European countries – paid more for energy and food, especially following Russia’s invasion of Ukraine. Russia, a key energy exporter to Europe, has cut gas flows to the bloc, bringing further insecurities to the energy market and driving up prices.

Moreover, Ukraine, a major exporter of wheat and other food products, has not been able to ship its products abroad at the same rate as before the war. Farmers are also unable to sow and plant at the same rate as before, which could drive up food prices at harvest time.

Contraction of GDP?

The latest data comes at a time when more and more economists are talking about a recession in Europe within the next 12 months. In fact, the euro fell to its lowest level in two decades against the US dollar on Tuesday morning, as more investors anticipate a greater likelihood of economic turmoil down the line.

Chris Scicluna and Emily Nicol, two economists at Daiwa Capital, said Germany’s first trade deficit since 1991 reflects price swings and continued weakness in exports.

“With the annual rate of increase in German import prices in May (30.6% YoY) nearly double the rate of export prices (15.9% YoY), Germany’s trade balance was always doomed to deteriorate,” they said in a search. Watch out Monday.

“However, taking relative price changes into account, continued weakness in export volumes, partly related to supply constraints, also played a role.”

They added that the data suggests there is a “high probability” that net trade was subtracted from German economic growth in the second quarter, “and adds to the risks that German GDP will contract in the last quarter”.


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