Two Reasons Germany Is Still An Export Powerhouse

Germany is the third largest exporter in the world, behind only China and the United States. In the aftermaths of the Great Financial Crisis, it was the German export machine to pull the country out of the its deepest recession since World War II. At the time, German businesses found in the growth-hungry Chinese economy a huge bucket of clients. Chinese companies needed German machinery for new industrial investments, while their owners could now afford the well-known, luxurious German cars.

This time is different. The economic crisis caused by the spread of Covid-19 has impacted not only the Western world, as it was the case in 2008-2009, but also the emerging markets. While Asian countries were more used to deal with pandemics than European and American countries, the fallout on their economies was essentially the same, and resulted in a deep industrial contraction.

Germany

Will Germany succeed to get out of the doldrums as it did in 2009? We believe that, notwithstanding the current crisis, there are two reasons why the German economy will do just fine.

1) Positive Domestic Environment

Germany is an export powerhouse, but it is also the largest economy in Europe and the most populous country in the continent. Combined with a GDP per capita of more than USD 50,000, Germany sits on a huge potential market.

Why just potential? High taxes have historically hampered domestic consumption in Germany. However, with a national debt on GDP of just 60%, Germany has plenty of ammunition to implement a gigantic fiscal stimulus: the government has promptly distributed subsidies for the crisis-hit population, but this could go much further in things such as cutting taxes and invest in infrastructure, that will surely boost domestic demand.

2) Exports Necessary For Foreign Businesses

We all think of German exports as the fancy, luxurious cars that carmakers such as Audi, BMW, Mercedes produce. And in fact, 10% of the country’s exports is tied to such products, which, not surprisingly are suffering from the effects of the pandemic. However, the rest of the country’s massive exports are in areas such as machinery, robotics, electrical equipment, pharmaceuticals, medical apparatus, plastics, chemicals and iron and steel products. To give an idea, machinery, and electrical equipment account for roughly 30% of the exports.

These industries are necessary for the myriad of medium and large enterprises worldwide that rely on the German industrial technology for running their businesses. If anything, the lockdown has incentivized manufacturers to update their supply chain, for example by making production more automated. As a result, there is no lack of demand for German exports which will continue to thrive even in the current crisis.

Globartis Research

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