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German exports: Record-high levels in 2016, but weak growth

16 January 2017 Coface

Growth in Germany exports: percentage change year-on-year.

 In 2016, Germany was one of South Africa's five biggest export destinations, with an 8.2% share of South Africa's total exports.

Germany’s statistics office reported a new all-time high in total monthly exports in November totaling 108.5 billion euros, 5.6 percent more compared to November 2015. Export volumes have increased about 50 percent since the low in 2009. Export growth has been impacted by the challenging global environment when up to November 2016, exports only grew 0.8 percent.

For the full year in 2016, export growth is expected to be between 1 and 1.5 percent at best. Due to the high level of risk in the global economy and strong import growth, net exports are not expected to support Germany’s growth in 2017.

In November, the strongest push in export activity was from countries outside the European Union showing a strong increase of 7.6 percent year-on-year. Although detailed data is not yet available, the euro’s depreciation against the US dollar after the US elections probably increased exports to the US, Germany’s most important export destination. Exports to the euro area grew 5.3 percent.

Shipments to EU countries outside the Eurozone grew by 2.8 percent. Exports towards the end of 2016 will probably be lower to the United Kingdom, Germany’s third most important export destination. In October, exports to the UK had already fallen 15.5 percent year-on-year.

Automotive exports decreased by 0.1 percent year-to-date in November, machinery exports were down 1.4 percent and chemicals 2.3 percent. Exports of Pharmaceuticals could see an increase over the course of 2016 of 1.2 percent and Data Processing/ Electrical and Optical Parts an increase of 1.4 percent. Exports of Electrical Equipment have increased by 3.9 percent to date in 2016, with final figures for the last quarter pending.

Risks

German companies are expecting increased export activity over the next few months. But export growth rates are expected to be contained and significantly lower than globalisation’s “golden years” between 2003 and 2007. Coface’s forecast for 2017 is that Germany’s export volume will reach a new record-high but export growth is expected to improve by only about 3 percent.

Volatility in the currency markets increased over the course of the last few months of 2016, strongly spurred by two key political events: the Brexit referendum and the presidential elections in the US. Due to the still increased level in political insecurity, the volatility in foreign exchange markets is expected to remain high.

Until now, German companies are taking advantage from the euro’s “Trump”-depreciation. On the other hand, the weaker pound is weighing on German exports to the United Kingdom. Since the Brexit plan and Trump’s stance in economic policy are still unclear, Germany’s exports could be affected in both directions due to shifts in exchange rates.

Another issue that could hamper Germany’s export perspectives is rising protectionism. Especially large companies could be forced to re-think strategic location decisions which could increase production costs, worsen competitiveness and lower profit margins.

This could especially affect the vehicle industry, which has or is building large production facilities in Mexico. Furthermore, increased tensions in trade policy between the US and China could lead to negative feedback loops in world trade and for German exporters.

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