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German exports drop in October suggests weakening but not faltering - ING

FXStreet (Delhi) – Carsten Brzeski, Research Analyst at ING, notes that the German exports dropped by 1.2% MoM in October, from +2.6% in September.

Key Quotes

“As imports dropped by 3.4% MoM, the seasonally-adjusted trade balance actually improved to 20.7 bn euro, from 19.2 bn euro in September. In our view, the October drop in exports is a technical correction after strong September data, rather than a structural shift. Honestly, it is also very hard to attribute this drop to the Volkswagen emission scandal.

Despite the negative contribution of net exports to German GDP growth in the third quarter, the export sector remains an important growth driver. Since 2009, net exports have contributed 0.1 pp to quarterly GDP growth; or one third of GDP growth every single quarter. This success story is not only the result of excellent quality and product specialization of German exporters, but also of a wide range of export destinations and recently the weak euro.

To some extent, the ECB’s QE programme and more specifically the weak euro have been an extremely well-targeted stimulus package for German exports. It nicely amplified export growth in the US and the UK, thereby offsetting the negative impact from slowing China.

Not surprisingly, Germany is amongst the biggest beneficiaries of the weaker euro, seeing its exports to non-Eurozone countries growing at a faster rate than the rest of the Eurozone; except for Ireland. While German exports to non-Eurozone countries grew by more than 9% during the first nine months of the year, the Eurozone’s export increased by 6%.

All in all, German exports have become an extremely mixed bag, always up for surprises and full of diverging trends. Due to too many economic slowdowns and geopolitical conflicts around the world, exports will continue having troubles gaining more momentum in the period ahead. However, as long as the monetary policy divergence on both sides of the Atlantic continues and the ECB continues with QE, exports should remain supportive to growth.”

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