Germany’s much-vaunted trade surplus disappears as import prices rise

German trade turned negative in May, raising questions about the stability of its economy following the Russian invasion of Ukraine.

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Germany exports no more than it buys from other countries, underscoring the strains the nation and other European economies are facing from rising energy and food prices.

Data released on Monday showed that Germany ran a 1 billion euro ($1.03 billion) foreign trade deficit in May. This is a significant moment for the German economy, which had been running trade surpluses for several decades. Bloomberg reported that the country last reported a monthly trade deficit in 1991.

The high level of exports was a key economic driver and the trade surplus was even attacked by former President Donald Trump, who wanted Americans to buy more US-made products.

“Germany’s vaunted trade surplus is gone,” Carl Weinberg, chief economist at High Frequency Economics, said in a note Tuesday, adding that “higher prices for energy, food and materials imports are driving up import bills.”

According to the Federal Statistical Office, Germany’s exports in May were still 11.7% higher than a year ago, but 0.5% lower than in the previous month.

However, the import bill rose by 27.8% year-on-year and was no longer offset by foreign sales.

Germany – like many other European nations – pays more for energy and food, especially after the Russian invasion of Ukraine. Russia, a major energy exporter to Europe, cut gas supplies to the bloc, bringing new uncertainties to the energy market and pushing up prices.

In addition, Ukraine, a major exporter of wheat and other foodstuffs, was unable to ship its products abroad on the same scale as before the war. Farmers are also unable to sow and plant at the same pace as before – potentially driving up food prices when harvest time arrives.

GDP shrinkage?

The latest data comes as more economists are predicting a recession in Europe within the next 12 months. Indeed, the euro fell to its lowest level in two decades against the US dollar on Tuesday morning, as more investors price in a higher likelihood of economic turmoil in the future.

Chris Scicluna and Emily Nicol, two economists at Daiwa Capital, said Germany’s first trade deficit since 1991 reflected price shifts and continued export weakness.

“With German import prices increasing annually in May (30.6% Y/Y) almost twice as fast as export prices (15.9% Y/Y), Germany’s trade balance has always had to deteriorate,” they said in a study Monday note.

“However, the continued weakness in export volumes, partly related to supply constraints, has also played a role, taking into account shifts in relative prices.”

They added that the data suggests there is a “high probability” that net trade will pull away from German economic growth in the second quarter, “raising the risk that German GDP contracted in the most recent quarter.” Germany’s much-vaunted trade surplus disappears as import prices rise

Joshua Buckhalter

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