The danger of reading too much into snapshots of economic data is illustrated by the latest German export figures.

German exports hit a record high in June, according to figures released last week. However, economists say soaring prices and runaway inflation are responsible for the rise, rather than the health of German exports.

Germany is an export giant. It is the third largest exporter in the world, behind China in first position and just behind the United States in second position.

However, there are growing concerns about the extent to which Germany’s export-dependent economy has been exposed to a series of global events in recent years.

Trade wars and rising tensions between the West and China, the supply shocks of the COVID pandemic and, more recently, the war in Ukraine, have all upended the order on which much of the prosperity was based. recent from Germany.
Game over for Made in Germany?

“Globally, there is no economy more exposed to the changes of globalization than Germany,” Andreas Nölke, professor of political science at Goethe University Frankfurt, told DW.

Nölke has written a book titled “Exportism: The German Drug” in which he argues that Germany has become dependent on its powerful export base and needs a new economic model to meet the demands of a changed global context .

“Germany was one of the countries that benefited the most from the period of globalization that we experienced from 1990 up to and perhaps just after the global financial crisis,” he said. “But now you can see that the data on globalization is slowly but steadily declining. I think Germany is in trouble.

Germany’s trade data for May revealed the country’s first trade deficit in more than 30 years, meaning it imported more than it exported. Carsten Brzeski, an economist at ING Bank and a longtime analyst of the German economy, assessed the news in stark terms.

“The war in Ukraine puts an end to the German economic business model as we knew it – a model that was primarily based on cheap energy imports and industrial exports to an increasingly globalized world,” he said. he declared.
gas games

While Nölke says the risk of Germany’s export exposure has been apparent for years, one of the most recent and pressing threats is Russia’s energy crisis, especially gas.

Europe’s largest economy has been one of the most dependent on Russian energy for decades, but the war has forced a colossal overhaul. As the EU rushes to cut Russian energy imports and Russia itself cuts the amount it supplies, many big export industries in Germany are wondering how they can survive without the relatively cheap energy. on which they have relied for so long.

While much of the focus on the impact of the energy crisis has been on domestic households, German industry could potentially be heavily affected.

A recent survey by the German Chambers of Commerce and Industry (DIHK) of 3,500 companies revealed that 16% of them reduced production or partially stopped their business activities due to rising oil prices. energy.

“These are alarming figures,” DIHK chairman Peter Adrian said. “They show how burdensome permanently high energy prices are.”

Ammonia on the chopping block
The warnings are getting louder and louder. Commerzbank, one of Germany’s biggest business lenders, said last week that the gas crisis could lead to a “severe recession”, likening the aftermath to the 2008 global financial crisis.

Certain sectors of German industry are particularly energy intensive. The chemicals sector is the largest (see chart below), although around a third of the almost 30% energy share it held in 2020 was in raw materials, such as gas, which is used directly to manufacture certain chemicals.

Other key energy-intensive sectors in Germany include the metals sector, coking and mineral oil production, and glass and ceramics. Common to most if not all energy-intensive sectors is that they are the main drivers of German exports.

At the start of the crisis, the German BASF, the world’s largest chemical group, warned that it would have to stop production if the supply of natural gas fell to 50% of its needs.

Last week, the company duly announced that it would reduce its ammonia production due to soaring energy costs, a decision that could have implications for ammonia-dependent sectors such as the production of plastics, fertilizer manufacturing and the soft drink industry.

Ammonia production has already been reduced during periods of high gas prices and can be replaced by foreign suppliers. However, Nölke sees it as an example of how things could start to change in the long term for German industry.

He also points out that other price-sensitive sectors and exporters are at major risk of bankruptcy due to the energy situation, especially in areas related to steel components.

“The best example is the auto parts industry and the companies that produce parts for the big automakers,” he said. “It’s a part of the industries that is in big trouble right now.”

Russia today, China tomorrow
As severe as the energy crisis is, the existential threat to Germany’s export-based economic model stems from many factors, not just the war in Ukraine and its repercussions on global energy markets.

Another major cause for concern is the reliance of the German business sector on, for example, China. China remains Germany’s largest trading partner – a situation critics say is unacceptable given the deterioration of relations between China and the West and the risk that decoupling from China will become a political and economic imperative.

“It is clear that at the moment large parts of German industry … are extremely dependent on the Chinese market. And if there is a big confrontation, there are big problems for this part of the Germany,” Nölke said.

The energy crisis is just the latest in a series of threats. For Germany’s army of exporting companies, the next few years present a unique challenge: to prove that Made in Germany is still about products rather than crises.
Source: Deutsche Welle