China and VW cloud Germany’s outlook
Negative data clouds quarter
GERMAN exports plunged in August by their largest amount since the height of the global financial crisis and leading institutes cut 2015 growth forecasts in the latest sign that an emerging market slowdown is hurting Europe’s largest economy.
The institutes stuck to their forecast for 1.8 percent growth next year, however, saying private consumption, boosted by low unemployment, strong wage gains and a positive impact from refugees, would offset the weaker export momentum.
A stream of negative headlines, from weak industrial orders and output data to Volkswagen’s (VW) emissions scandal and Deutsche Bank warning of a € 6 billion (R90bn) pre-tax loss in the third quarter have raised the risks of disappointing third quarter growth.
“Given the recent spate of poor August data, the latest trade numbers are not such a big surprise and remain consistent with our view that Germany is facing significant headwinds from weakening global demand,” Philippe Gudin of Barclays said. “Risks are clearly tilted to the downside.”
Seasonally-adjusted exports dived 5.2 percent to € 97.7bn month on month, the steepest drop since January 2009, data from the Federal Statistics Office showed.
Imports tumbled by 3.1 percent to € 78.2bn, the biggest onemonth decline since November 2012. Germany’s trade surplus narrowed to € 19.6bn.
Economists polled by Reuters had been expecting much smaller declines in exports and imports of 1.2 percent apiece and a trade surplus of € 22.5bn.
Although the weak trade numbers were partly due to an unusually large number of holidays falling in August, waning demand from abroad, particularly China and other emerging markets, is beginning to leave its mark.
“Weakness in China, Brazil, Russia and other markets is having an impact,” Holger Sandte, the chief European economist at Nordea, said.
The German economy has posted four consecutive quarters of growth since a mild contraction in the second quarter of 2014, expanding by 0.4 percent in April to June.
Germany’s leading economic institutes said they also saw third quarter growth of 0.4 percent, but cut their growth forecast for the year as a whole to 1.8 percent from 2.1 percent, citing weakness in China and other emerging markets.
The International Monetary Fund cut its global growth forecast for the second time this year on Tuesday, also citing the slowdown in China, the world’s second biggest economy, as a factor.
A fall in Chinese demand would hit Germany’s car industry especially hard as it sold more than 10 percent of its exports there, the institutes said.
“This is important as this key sector is already subject to great risk due to the scandal about the manipulation of emissions tests,” their report said.
The diesel emissions scandal engulfing VW has raised wider fears about the country’s biggest export industry, which accounts for roughly one in five jobs.
The car sector made up 17.9 percent of Germany’s € 1.1 trillion in exported goods last year, according to Deutsche Bank, and has enjoyed above- average export growth since.
The head of the DIW institute (Deutsches Institut für Wirtschaftsforschung) said given VW’s size, the scandal would reverberate in the wider economy and risked tainting the “Made in Germany” label.
“The numbers are simply gigantic, so that problems in that field have consequences,” the DIW’s Ferdinand Fichtner said. “I feel comfortable calling it a certain negative risk to exports, though I can’t say to what degree.”
But the institutes highlighted the potential upside of the record influx of refugees to Germany. – Reuters