German Exports Struggle to Recover

German exports rebounded by less than expected in October, dampening hopes that trade will make a significant contribution to a predicted expansion in Europe’s biggest economy in the final quarter of this year.

Data suggests that German industry, whose output rose less than expected in October due to stagnating factory output, will only witness a mild recovery in the last three months of this year, Reuters reported.

Exports have almost stagnated over the last 12 months, growing on average by 0.1% monthly from a historical average of 0.3%.

“Looking ahead, however, the latest weakness of the pound sterling and possible protectionist policies under the new president in the United States do not bode well for the outlook for German exports,” said ING economist Carsten Brzeski. “It seems as if exports’ troubles gaining momentum will not be over any time soon,” Carsten said.

Seasonally adjusted exports rose by 0.5% on the month, data from the Federal Statistics Office showed, while imports increased by 1.3%.

The data reinforces a trend of weakening exports, which have been losing their traditional role as the main growth driver in Germany.

Hours after the data was published, the BGA trade association said it would lower its 2016 growth forecast for exports to a “mini-plus” from a previously projected 2%. “The forecast of 2% growth is no longer valid,” a spokesman for the BGA told Reuters. “We will now go for a mini-plus for this year.” The spokesman did not give more details.

A Reuters poll had pointed to exports rising by 1% and imports posting a 0.9% increase.

The jump in imports narrowed the seasonally adjusted trade surplus to €20.5 billion ($21.65 billion) from €21.1 billion in September. The October reading was below the Reuters consensus forecast of €21.5 billion.

Exports for September were revised down for a fall of 1% from a previously reported drop of 0.7%.

Private consumption and increased state spending have been fuelling German growth. But the positive effects of private consumption are likely to wane next year, as rising consumer prices and weaker wage increases are expected to discourage Germans from spending.

  Labor Market Bottlenecks

Germany’s economy is on a solid upward path but weakening consumption growth and labor market bottlenecks could constrain its expansion in the coming years, the country’s central bank said.

The state budget, already in the black, will continue to generate surpluses without new spending measures and state debt could fall to 60% of GDP, the government’s coveted level, by 2019, the Bundesbank said in its fresh biannual economic projections.

The eurozone’s biggest economy has been the engine of the bloc’s recovery and the European Central Bank has repeatedly called on Germany to spend more to give the still fragile expansion a boost.

But the government, facing elections next fall, has rejected those calls, making fiscal prudence a key plank in its campaign. “The highly favorable setting for household consumption at present looks set to turn slightly gloomy in the years ahead as demographic constraints soften employment growth and higher rates of inflation erode consumers’ purchasing power,” the Bundesbank said.

  Exports and Imports

Germany’s exports and imports account for more than half of the European Union’s international trade.

Germany has been a part of the World Trade Organization since January 1, 1995. German exports tend to focus on industrial produced goods and services.  German mechanical engineering products, chemicals and cars are highly valued across the world.

Most of the imports to Germany come from the Netherlands, China and France. These imports include machinery data processing equipment, chemicals, metals, electric equipment, pharmaceuticals, agricultural products and food.