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Germany’s bumper trade surplus has shrunk to its lowest level in a year on the back of a sharp climb in imports  at the start of the year.
Germany’s bumper trade surplus has shrunk to its lowest level in a year on the back of a sharp climb in imports  at the start of the year.

Cracks Evident in German Growth

Hard data shows that Germany’s economy has been facing problems for at least the past six months, despite an uptick in growth at the end of last year

Cracks Evident in German Growth

Germany is often described as the “powerhouse” of Europe, but the health of the world’s fourth largest economy is not as rosy as most people think, according to one economist.
“The crack in Germany’s economy has become most evident in consumer spending. Retail sales volumes have slowed consistently since growth rates peaked in mid-2015. They have crashed in the last six monthly reports,” Carl Weinberg, chief economist at High Frequency Economics, said, CNBC reported.
Hard data shows that Germany’s economy has been facing problems for at least the past six months, despite an uptick in growth at the end of last year. At the same time, income has been slowing dramatically and the reasons behind this are far from clear.
“As domestic demand is imploding, so is foreign demand,” Weinberg added. “Exports are flat year-on-year. This is not to say that net exports are not rising. However, the flat gross exports mean industrial output to make goods for export is not growing. Without growth of either exports or domestic consumer spending, industrial production has stalled.”

 Factory Orders Fall
On Tuesday, data showed German industrial new orders dropping by 7.4% on the month in January–the biggest monthly fall since 2009. According to Reuters, a breakdown of the January figures showed a drop of 10.5% in domestic demand and a contraction of 4.9% in foreign orders.
However, industrial production data released Wednesday gave some relief to analysts and investors. Industrial production rose by 2.8% on the month after contracting 2.4% in December.
Carsten Brzeski, chief economist at ING, said in an email on Wednesday that “the increase in industrial production shows that the shocking drop in December was mainly driven by the Christmas season and the cold winter weather. At the same time, however, the fact that on the year industrial production has remained flat shows just how difficult it is for the industry to get out of stagnation.”
Looking at the hard data, Weinberg concluded: “Germany’s real economic indicators are faltering. A clear crack in the trajectory is evident. Those are the facts. Invest accordingly.”

 Trade Surplus Shrinks
Germany’s bumper trade surplus – long a scourge of the country’s economic critics – has shrunk to its lowest level in a year on the back of a sharp climb in imports at the start of the year, Bloomberg reported.
The country’s trade balance–a measure of the difference between its imports and exports–fell from €18.7 billion ($19.85 billion) to €14.8 billion in January compared to December–a far steeper drop than the €18 billion forecast by economists ahead of the release.
A shrinking surplus was driven by a 3% rise in monthly imports, while exports also bounced back from a 2.8% decline to rise by 2.7%. With the exception of last November, the rise in imports was the best month since 2014.
Still on a year on year measure, the surplus still rose 12% compared to January 2016, with exports climbing 12%, said Destatis, the Federal Statistical Office of Germany.
The country’s current account balance–a measure of its external balance in trade and income–also shrunk more than expected, falling by nearly a half from €24.8 billion to €12.8 billion. Overall, the current account surplus is expected to hit an all-time record of 8%.

 Labor Costs Rise
Labor costs in the German economy accelerated at their best pace since the depths of the financial crisis at the end of last year, as record low boosts the prospect of wage rises.
A measure of German labor costs per hour rose 1.5% in the fourth quarter–its best jump in nine years–while overall costs were up 2.5% in 2016, well above the 1.9% average in the EU over last year.
Destatis said higher labor costs can be attributed to the falling number of hours worked by German employees as the country’s unemployment levels have hit the lowest since reunification in 1989.

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