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Economy in Brief

German Trade Shows Slowing Exports - But Why?
by Robert Brusca  March 10, 2011

German exports, although expected to remain strong in 2011, fell in January taking their 3-month growth rate into negative territory along with it. Notwithstanding this set-back the German trade group BGA just yesterday affirmed the outlook for strong German exports in 2001 looking for growth to be 9% with imports at a 12% pace.

Outlook disconnects from recent trends - German exports are expected to reach a new record this year according to BGA. But as this optimism circulates we have counterpoints; troubles in the Middle East and a surprise trade deficit reported on Chinese trade amid signs that China's economy may have slowed its pace. For now the China data appear to be skewed by the lunar holiday, a common yearly occurrence. But apart from that some true Chinese slowing is expected. Whether this leads to a slowdown in imports is debatable since China is trying to shift to a more consumption-based model. If it does so, the growth in its import market could be maintained, an important possibility bearing on the outlook for German exports, among others. China right now is a major question mark while the Middle East is a major uncertainty and risk; Germany's January export drop is a surprise, but it is also part of a trend...

Strong imports- German imports continue strong largely because of surging petroleum prices. German capital goods imports, however, fell sharply by 8.2% in December but we do not have the detail yet for January data. Consumer goods imports also fell in December. Imports were strong in January but are coming off of an even weaker December. Yet even in December import growth rates were on the rise at a 15.5% pace. This was despite a drop at an 8% pace in capital goods imports. Motor vehicles and consumer goods imports were up at strong double digit pace in December. All of this is very positive for the development of domestic demand in Germany with the exception of the weakness for capital goods imports.

Strange days for some import metrics- What is oddest about these import figures is that the core of German strength is capital goods and that German industrial orders have surged in January rising by 4.5% m/m and at a nearly 13% growth rate in the three-months ended in January. Despite this, domestic capital goods sales have weakened, imports of capital goods have weakened and measures of other domestic spending have not been strong to take up the slack. For now there are pieces of the puzzle that do not fit together.

Export trends - As for exports The three month growth rate turned negative and their six month growth rate has declined sharply from its 12-month pace. Through December trends showed that both capital goods and motor vehicle trends are negative over three-months and six months, they compare to strong double-digit rates of growth over 12-months. With aggregate exports down slightly in January there is not much room for improving these trends when we post January observations. These data are not consistent with the buoyant outlook from BGA. German export orders continue to show strength, but not without some hesitation.

Orders exports and demand inconsistencies, Oh my - German domestic orders rose by a sharp 4.5% in January and are up at a 12.7% pace over three months as imports were volatile across Jan-Dec but were up at a 15.4% pace over three-months. With imports so strong and domestic orders so strong this could be a signal of real heating up in the German economy through domestic demand. But over the last two months export orders fell by 3.8% then rose by just 1.6% in January; still the three month growth rate was a stunning 25% annualized, on the strength a super spurt in foreign orders in November. German exports do not reflect these strong order trends. But then orders are not shipments and there are lags involved, especially for capital equipment. Looking at the longer term trends, export orders tend to lead German exports. Export orders did boom earlier in 2010 showing a peak (y/y) growth rate in April. They have since slowed but only marginally. German exports have meanwhile have been steady at a strong 12-month growth rate at about 20%. The year/year trends are much smoother and conceal and the weakness we see under the microscope of 3-Mo and 6-Mo growth rates.

Summing up - From this picture it appears that German export growth still has substantial push but that the acceleration is over. While there may be some susceptibility to growth shifts overseas, the situation does not appear to have increased German fragility in any way. German order and output trends are strong, despite some near-term weakness and variability that might be explained at least partly by the harsh winter. Trade data may have other explanations for their month-to-month fluctuations, including weather. For now German order trends are strong and smoothed export trends are too. The slowdown in exports over six-months and three-months is not confirmed by order weakness. Still, it is a mystery even larger than the drop in exports in January, and although it may not be a real signal, still these are trends worth watching closely. How will these short terms inconsistencies resolve themselves?

German Trade Trends for Goods
  M/M% % SAAR
  Jan-11 Dec-10 3M 6M 12M 12MPrev 2Yr Ago
Balance* € 11.81 € 14.20 € 12.64 € 13.32 € 12.82 € 11.60 € 13.99
EXPORTS
All Exp -1.0% 0.5% -0.1% 2.8% 21.5% 23.8% -2.4%
Capital gds   -0.7% -7.1% -3.1% 12.6% -2.9% -13.2%
Motor Vehicles   -0.3% -10.1% -1.6% 20.1% 7.0% -32.5%
Consumer Gds   7.1% 5.8% 2.3% 12.2% -10.2% -0.9%
IMPORTS
All IMP 2.3% -2.6% 15.4% 5.4% 21.7% 21.3% 4.8%
Capital Goods   -8.2% -8.0% -6.4% 21.0% -10.9% -2.7%
Motor Vehicles   0.0% 25.6% 22.5% 24.2% 5.2% -23.3%
Consumer Goods   -0.2% 13.8% -2.7% 11.6% -13.4% 3.3%
Ratio X:M 116.7% 120.6% 121.0% 116.4% 127.1% 117.3% 123.8%
Real X -orders 1.6% -3.8% 25.1% 15.3% 20.6% 53.7% -7.3%
*Eur Blns; Mo or period average; Shaded area trends lag one Mo
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