Something doesn’t add up.
Germany’s export-focused economy has been showing some signs of weakness, but no signs of an outright Financial-Crisis type collapse. So this data set released today by the German Statistical Agency doesn’t match those trends, and it doesn’t fit into the scenery. It could be an outlier, a statistical quirk, something that will be adjusted out of the way later. Or it could be a very unpleasant warning sign.
The German Statistical Agency today reported that, based on preliminary data, exports in July plunged 10% compared to July last year (not seasonally adjusted), to €96.4 billion.
And imports dropped 6.5% (not seasonally adjusted) year over year, to €76.9 billion. This slashed Germany’s trade surplus for July by 21% to €19.5 billion.
Exports to the 28-member European Union plunged 7.0% to €56.3 billion, while imports from EU countries dropped 4.5% to €51.3 billion.
And now it gets interesting, in the worst possible way…. Year-over-year Exports to “third countries” – countries outside the EU, particularly the US, which has become Germany’s largest trading partner in 2015, replacing France in that position – plummeted 13.8% to €40.1 billion.
Imports from those “third countries” plummeted 10.1%.
Statistical data has a way of driving rational people nuts, and I’m not entirely sure what to make of it. A massive drop in exports like this has not occurred in this year or last year. But double-digit year-over-year increases have occurred when very large orders came together in one month. In 2015, every month booked year-over-year export increases. So far in 2016, there were three months out of seven when exports dropped on a year-over-year basis: January (-1.5%), March (-0.6%), and now July (-10.0%).
This leaves exports for the first seven months of the year down 0.4%, compared to the same period a year ago.
The last time annual exports edged down was in 2013 (-0.4%), due to the lingering effects of the euro debt crisis. Before then, the last downturn was the infamous year 2009, when Germany’s exports plunged 18.4% as global supply chains were freezing up. And those were the only two years when exports declined since 1993!
So annual export declines are rare in this export-focused economy where every time a Chancellor goes overseas, planeloads of German business tycoons accompany him or her to make and sign mega-export deals, such as selling high-speed trains to Russia or military helicopters to Saudi Arabia. Which often leaves folks scratching their heads.
Why, for example, would Indonesia, an island nation, need 104 Leopard battle tanks, 50 Marder infantry fighting vehicles, and 10 other military vehicles? To fight off a land invasion from where exactly? Or to fight off its own people? But no matter, exports are exports, and they’re sacred, and this was 2013 when export growth was shaky, and Chancellor Merkel went to Indonesia on a state visit and the deal got done.
So July’s plunge in exports is rattling some nerves. Explanations are being put together a mile a minute. The big one is this: In July 2015, exports were strong, at €107.1 billion, up 7.1% from the prior year. And so the theory goes that today’s report was so bad because a year ago, it was so good. It’s the “base effect.” That makes some sense. But wait…
July 2015 exports were not as strong as March 2015 exports, and exports in March 2016 had the same base effect or bigger to deal with as those in July, but they edged down year-over-year only 0.6%, rather than plunging 10%.
And besides, exports this July, at €96.4 billion were 3.6% lower than exports in July 2014! So something doesn’t quite add up.
The fact the exports for the year so far are also declining doesn’t improve the rosy scenario. Nevertheless, we will need a few more months of data to determine if this export plunge is real, and scary, and speaks of a sudden collapse in global demand for German goods, or any goods, or if it’s just a statistical outlier within a run-of-the-mill, if rare, German export downturn.
There might already have been some red flags. Read… World Trade Falls for Second Quarter in a Row
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.