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Economy in Brief

German Exports Log Record Plunge; German Surplus Lowest Since October 2011...Future? Unknown
by Robert Brusca  May 8, 2020

German exports fell by 11.8% in March, a record drop in exports. Trade details lag by one month and are not very useful in understanding new developments in trade since this month is simply off the cliff in comparison with everything else.

Germany, as dependent as any country
Because Germany is an export-oriented economy. The fact that its own reaction has kept its economy more intact than most other European countries does not help it all that much because demand for German products comes from abroad. Globally weak economic conditions have cut demand for German exports. As a result, German imports, too are off sharply, falling by 5.1% month-to-month. The German trade surplus is at its lowest level since late-2011, about eight and one-half years ago.

Global interdependence
No country will be able to perform in isolation in the period ahead. Germany is especially dependent on the environment outside its borders because of its export dependence. The virus is still out there being dealt with. Even as there is relief, that lockdowns are being unwound and business is getting back toward normal that normalcy is a long way off and then there is the fear of a second wave.

Is social distancing really anti-social?
Epidemiologists warn of the second wave and unfortunately their plan for using social distancing has reduced the spread of infection which means that it has reduced the incidence of herd immunity everywhere except Sweden. Herd immunity refers to a condition in which enough of the population has gotten the virus and has antibodies from previous infection that the virus will no longer spread so easily or quickly through the population. The critical percentage for herd immunity to be effective is to have about 60% of the population with these antibodies. To get to such a state much wider infection rates are needed than what have been allowed. Because of this decision, there is a greater vulnerability to a second wave.

The truth about trade-offs
Sweden used an individual approach that also utilized some self-imposed social distancing but left more of the economy open to operate. The virus there spread more than in other nations. Still, the point here is that more infecting would have been good (regardless of what you hear people saying... more infection would have been GOOD), but authorities just about everywhere sought less infection to reduce the load on hospitals, to contain deaths and out of fear that the virus was growing exponentially even though it was not. (Read or listen to this here by Nobel prize winner Professor Michael Levitt on the mistakes we have made. I think this is one of the most important pieces of information that too few people have had). There is no way around the argument that the plan for dealing with the virus has been short-sighted. The virus offers options that are nothing short of playing with fire: it can burn you now or burn you later. Not surprisingly, more countries have chosen to roll the dice on being burned ‘later.’ But having spent all the money and suffered this dislocation once will countries be able to do ‘this again’ if it is required to deal with a second wave? And then, if they do, what, if herd immunity still is not obtained? What about the next time and the time after that? There is no avoiding the future.

Future risk
These facts or expected future conditions make it very difficult to create an economic outlook. Even as there is some rebound in the various global economics, there is concern about the potential for a second wave and second hit to growth later in the year when temperature drop again in the Northern Hemisphere. Are economies positioned to take that in stride or will there be a second shutdown/lockdown to deal with that? And if there is, when does that process end?

Science or science fiction?
Some heath experts have even counselled that we all should hunker down and wait for a vaccine to be developed. We are told this is science. But in fact, this is science fiction since there is never ever any certainty that an effective vaccine will ever be developed.

When reality bites, there is no antidote
Meanwhile, the strain on government finances, and the fact that few if any governments can protect and care for everyone as the virus shutdown endures, implies winners and losers. Even as business gets slowly back to work, certain businesses remain impacted and there are workers and business owners who are not made whole financially. What happens to such people if it takes 18 months to get back to ‘where we were’ in terms of GDP? The problem is that there are many more questions like this one than there are answers. And the questions are big questions. Despite the steps being taken in the direction of normalcy, the trip back to normalcy will be a long one and at this point we have no idea how far back we might get before getting permanently side-tracked and what the new normalcy will eventually look like. The answer to that query is very important because economic recovery policy and functioning must be reset to our new attainable destination not to the old one. If some businesses are not coming back, we need to know it as soon as possible to redirect and stop throwing ‘good money’ after bad. There is so much we need to do that we do not have a clue about. Throwing money at ‘solutions’ that just ‘buy time’ will ultimately prove a foolish choice.

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