The German current account surplus - Holding captive the German and global economies

 Published On: Sep, 2017 |    No of Pages: 31 |  Published By: MarketLine | Format: PDF
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Summary

The size of Germany's current account surplus is an economic phenomenon as the forces behind it go beyond the simple competiveness of German exports. Indeed, the widening gap between domestic savings and investment is the determinant of this trade surplus, which is shaped by the actors of the German economy; namely firms, the government and households.  Furthermore, the harmful impact of this trade surplus reaches across the domestic economy - where it is a source of rising inequality and limited social welfare - to the global stage, where it acts as a means of destabilizing the economies of countries that accumulate unsustainable debt through trade deficits.

Key Highlights

- The German exporting model has been based on the depreciation of German labor, as that is reflected by industrial relations and labor reforms. Simultaneously, the propensity of German households to save has led to subdued domestic consumption, reinforcing the exporting model. Furthermore, the attachment of the German government to fiscal surpluses has further enhanced this trend.
- The German exporting model is destructive for the global economy as it leads to the indebtedness of other countries while lying on the economic distortions of an undervalued currency.
- The current account surplus of Germany is a source of rising inequality and limited welfare for the German population as it has been built at their expense, with the benefits offering a lot to a few winners.

Scope

- Explores the size of the German current account surplus.
- Analyzes the forces behind the German current account surplus.
- Explores the various dynamics across the actors of the German economy that shape its current account surplus.
- Assesses the impact of the German current account surplus on the domestic and the global economies.

Reasons to buy

- How and why has the German current account surplus reached enormous levels?
- Why is the German current account surplus destabilizing for the global economy?
- Is the German exporting growth model beneficial for the domestic economy?

Table of Contents
Overview  2
Catalyst  2
Summary  2
Export model creates huge surplus  6
Size of German exports and trade surplus is enormous in relation to national economy  6
Current account surplus of Germany is a global economic phenomenon  7
The force behind the German surpluses are the domestic savings and investment gap  9
Household savings are the cause but not the accumulator of the trade surpluses  10
German government’s attachment to fiscal savings urges trade surpluses and puts brake on domestic consumption  12
Firms have accumulated capital stock exploiting the internal depreciation of labor and the German industrial relations model  14
German trade surplus sets at risk the sustainability of national and global economies  18
The trade surpluses of Germany are the trade deficits of the other countries  19
Germany exploits fact that Euro is an undervalued currency for her and an overvalued currency for the other Euro Area members  20
German economic growth model does not seem to work for its people 21
Current account surplus built at expense of household income  21
Consumption rigidity of German households limits their own prosperity  27
There is no robust economy without domestic consumption – Germany is playing with fire following a self-destructive model  27
Conclusions  28
Appendix  29
Sources  29
Further Reading  29
About MarketLine  30
Disclaimer  30

List of Tables
Table 1: Germany – Key macroeconomic indicators, 2010-16  7
Table 2: International trade figures of the largest economies, 2016  8
Table 3: Household Savings, 2010-15, (% GDP)  11
Table 4: Public Finance of Germany, 2010-2016, (% GDP)  12
Table 5: Public Finance of Germany, 2010-2016, EUR (bn)  13
Table 6: Government spending of Germany, 2010-2016, (% GDP)  13
Table 7: Government Spending of Germany by function, 2010-2015, (% GDP)  14
Table 8: Government Spending of Germany, 2008-2016, (% GDP)  17
Table 9: Net Lending, Capital Account Balance and Foreign Account Balance of Germany, 2005 - 2016, ($bn)  18
Table 10: Correlation pattern of the overall trade balance of certain countries and their trade balance with Germany, based on 2001 – 2016 trade figures  19
Table 11: Income and living conditions in Germany and the Euro Area, 2005-2015, (%)  22
Table 12: At-risk-of-poverty rate before and after social transfers, 2015  23
Table 13: General government expenditure in social protection in Germany, 2005-2015, (% GDP)  23
Table 14: Inequality of income distribution, 2015  24
Table 15: People at risk of poverty or social exclusion by educational attainment level (population aged 18 and over), 2005-2015, (%)  26

List of Figures
Figure 1: German exports and foreign trade balance 1991-2016, current prices ($bn)  6
Figure 2: Current account balance, 2000-2016, ($bn)  8
Figure 3: Gross domestic savings and gross capital formation, 2000-2016, (% GDP)  9
Figure 4: Household Savings and Savings Rate in Germany, 2000-2016, (% GDP)  10
Figure 5: Household Financial Assets in Germany, 2015, (% total)  11
Figure 6: Household Consumption of the most developed economies, 2010-2016, (% GDP)  12
Figure 7: Relative Unit Labor Costs (1999-2016), 1999 index-based  15
Figure 8: Gross wages and salaries and output per employed person in the manufacturing industry, 200-2016, (2010-index based)  15
Figure 9: Unemployment and growth of labor compensation, 2010-16 (%)  16
Figure 10: External Position of the Bundesbank in the ECB, 1999-2016 (EURm)  20
Figure 11: Gini coefficient of net household income in Germany, (1991-2014)  22
Figure 12: Index of labor costs in Germany, 1996-2016, 2012 index-base year  25


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