German export industry back on the road to recovery, with emerging markets gaining in importance

April 30, 2010

The global economic downturn following the financial crisis led to dramatic slumps in exports in Germany. As the world economy begins to recover, bilateral trade relations are now developing in very different ways. While exports to emerging markets are rising strongly again, deliveries to developed markets are picking up only very hesitantly.

Before the global recession the German export engine was running at full speed. In 2008, total German exports reached a new record high at EUR 981.8 bn. In bilateral trade record figures were reached, too. For example, deliveries to France - Germany's No 1 export market - rose to an average EUR 7.8 bn per month (9.5% of total exports). At the end of 2008, the shock wave triggered by the Lehman crisis hit the real economy. With a slight delay, German exports nosedived in H1 2009 (-21% compared with 2008).  Exports to France fell by more than 13% to EUR 6.7 bn per month. Exports to the US, previously Germany's second largest export partner, even dropped by over 20% to EUR 4.6 bn per month in the same period. Deliveries to other major trade partners such as the Netherlands, the UK, Italy and Spain also plunged. Beside the slump in exports to industrial countries, deliveries to emerging markets also declined. Exports to India dropped 13%, to Brazil 29% and to Russia even in excess of 35% (H1 2009 compared with 2008). Only exports to China were nearly unchanged during this period.

Table 1: Bilateral and regional export performance
Average volume per month in EUR bn, seasonally adjusted

*Brazil, Russia, India and China.
Sources: IMF, Deutsche Bundesbank, DB Research

By passing large-scale fiscal rescue packages, the governments of all the large industrial countries and major emerging markets managed to cushion the deep and synchronous economic downturn. Germany’s export sector benefited from the subsequent recovery of the world economy. Having registered only relatively small declines during the crisis, exports to China rose quickly by more than 13% in the recovery phase. With an average monthly volume of EUR 3.2 bn, exports to China even reached a new all-time high in H2 2009. At 30% and 22%, respectively, exports to Brazil and India are also showing strong double-digit increases and are back at pre-crisis levels. The large industrialised countries – first and foremost the US and France – have yet to stage an equally strong recovery. Germany's exports to France, for instance, only rose by 2.4% in H2 2009 (compared with H1 2009). Exports to the US, by contrast, even fell once again by more than 6% compared with the crisis months. Sluggish US demand is in part the result of the weaker dollar exchange rate, but also of feeble private consumption. In particular, high household debt, the higher unemployment rate and a return to higher savings rates of around 5% are standing in the way of quick recovery.

As the individual countries fared differently both during the slump and in the recovery phase, country rankings have also changed. The US lost its second place and now ranks fifth behind France, the UK, the Netherlands and Italy. China, by contrast, moved up from eleventh to eighth place and continues to make headway. Nonetheless, the US and the European countries will remain Germany’s main export markets over the next few years. Pre-crisis growth in exports to these countries, however, was already weaker - at 4% to 6% p.a. from 1991 to 2009 – than the increase in exports to the emerging markets. The crisis simply reinforced an already existing trend. Over the next few years exports to China will likely keep up their impressive momentum (+19% p.a. between 1991 and 2009). China’s share in German exports of currently about 5% could thus double in just six years.

Exports to other emerging markets have also increased markedly over the last twenty years. Germany’s eastern neighbours Poland (15% p.a.) and the Czech Republic (13% p.a.) both boasted double-digit annual growth rates. Moreover, exports to the countries referred to as the "next eleven" (South Korea, Mexico, Turkey, the Philippines, Egypt, Indonesia, Iran, Pakistan, Nigeria, Vietnam and Bangladesh) also grew by approx. 12% annually. Thanks to their population total of roughly 1.3 bn (with South Korea's population being the smallest at 49 m and Indonesia's the largest at 237 m) exports to these countries enjoy considerable growth potential. The countries’ huge catch-up potential, particularly in infrastructure and manufacturing, implies that their share in Germany's exports could rise substantially from the current 4.6%.

Should the economic development described above continue, the emerging markets – first and foremost the BRIC countries, the countries of Eastern Europe as well as some of the “next eleven” economies – will increasingly gain in importance for Germany’s export industry over the coming years. Hence, China could make second place in three years' time and even overtake France as Germany's main export market in 2016. By then, Poland should also have forced its way into the top 5 group. In addition, German exporters will focus more on countries like Russia, India, Brazil, South Korea, Mexico and Turkey in future. But thanks to their geographical proximity the EU countries will also remain major export markets for Germany.