New records instead of crisis: German exports 2018 in numbersLow impact of Brexit and trade disputes until now (Ernst Leiste)
Although exports fell by 4.5% in December 2018, exports totaled € 1,371.9bn Euro, up 3.0% for the year as a whole, setting a new export record for the fifth consecutive year. One main reason for the continuity is likely to be that the medium-sized German exporters are still succeeding in compensating weaknesses through export growth in alternative markets.For example, in the face of Brexit, German exports to the United Kingdom fell by EUR 3.4 billion in 2018, but small Ireland, with a strong export increase of EUR 3.6 billion (+ 45.5%), was able to compensate the decline of the German UK exports. Foreign trade experts suppose that “Getting Ireland Brexit Ready” initiative of the Irish Foreign and Trade Ministry is already making an impact and that EU companies are seeking their own Brexit bypass via Ireland.
German Business with the EU remains strong
Other EU countries are proving to be stable markets for “Made in Germany” goods despite the deteriorating perspectives of the global economy. For example, according to preliminary figures from the Federal Statistical Office (Destatis), the Netherlands contributed an increase in exports of 6.6 billion euros (+ 7.8%), Italy plus 4.6 billion euros (+ 7.0%) or Poland plus € 4.3bn (+ 7.3%), which was a significant improvement on the export result of almost € 40bn compared to 2017.
At 778.6 billion euros, almost 60% of German exports now go to countries of the European Union. Noteworthy gains in 2018 were Ireland (+ 45.5%), Portugal (+ 11.8%) and Greece (+ 9.7%). The CEE region is also relatively dynamic: Croatia (+ 9.0%), Romania (+ 7.4%), Poland (+ 7.3%), Slovenia (+ 6.9%), Bulgaria (+6.1 %), the Czech Republic (+ 6.0%) and Hungary (+ 5.3%).
Americans appreciate German machines
The many concerns expressed about the German export markets 1 and 3 – USA and China – have not been confirmed yet. Despite looming US anti-dumping duties and President Trump’s America First policy, German exports via the Atlantic in 2018 have risen again by 1.5% to € 113.4 billion. In 2017, 111.8 billion had been achieved, an increase of 4.7%.
Above all, the preference of the Americans for German machines continues unabated. According to information from the German Engineering Federation (VDMA), German machine-builders were able to increase their deliveries by a notable 7.1% to € 19.2 billion in 2018 despite the “Buy-American” demands of President Trump. In 2017 sales to the USA already increased by an impressive 11.6% to just under € 18 billion. In terms of deliveries to the United States, the mechanical engineers – according to the VDMA – benefited not only from the good state of the US economy but also from the corporate tax reform and significantly improved depreciation conditions.
Growth in the US business is also recorded in the German electrical industry. According to the latest data from the Zentralverband Elektrotechnik- und Elektronikindustrie (ZVEI), the upward trend in 2018 was slightly slower with exports of € 17.8 billion (+ 4.3% to last year). In 2017, electrical and electronic goods “Made in Germany” had been shipped “across the pond” for € 17.0bn (+ 5.8%).
By contrast, exports of German carmakers to the United States continue to decline. According to the German Association of the Automotive Industry (VDA), only 470,000 new cars were exported from Germany to the USA in 2018, ie 24,000 vehicles or 4.7% less than in the previous year. At the same time – according to the VDA – around 750,000 light vehicles ran off the production line in the German-US plants, exceeding Germany’s car exports to the United States by more than one and a half times.
Exports to China tripled in the last 10 years
German exports to China in 2018 increased by an above-average 8.1% or almost 7 billion euros to 93.1 billion euros. In the last ten years, German exports to China have almost tripled. While still in 5th place of the German export ranking in 2015, China has now “worked its way up” to number 3.
German high-tech machines remain in high demand in China. According to VDMA figures, in China, 19.1 billion euros were sold by 9.6% more German plants. China is thus preparing to replace the US as the most important sales market for German engineering companies. According to the VDMA, the program “Made in China 2025” provided an impetus.
China remains customer number 1 for the German electrical industry. According to the ZVEI, this amount was EUR 21.0 billion, 10.1% more of German electrical products shipped there. The strong upward trend of 2017, when exports reached 19.1 billion euros (+ 17.8%), is continuing.
The German motor vehicle industry is also likely to be satisfied with its China business, as passenger car exports to China rose by 11.1% to 287,000 units in 2018 according to VDA figures. At the same time, 5.1 million units at the plants of German vehicle manufacturers were 0.2 million more vehicles than in the previous year. This means that almost 95% of the German car brands sold in China are now manufactured locally.
Whether the decline in German-US and German-Chinese exports in December 2018 by 6.4% and 7.6%, respectively, is leading to a turnaround or is only a hiccup remains to be seen in regards of the ongoing trade talks between Washington, Beijing and Brussels.
Brexit vote knock through
On the other hand, the Brexit vote shows a clear effect. German exports to the United Kingdom have already declined in the third year and have fallen by over € 7 billion since 2015. After the German export, UK export had also dropped by 3.5% in 2016 and by another 0.6% in 2017, it fell again in 2018 by 4.0% to just € 82.0 billion. The United Kingdom, still number 3 on the German export ranking in 2016, has now slipped two places behind China and the Netherlands in fifth place. In addition to the Brexit chaos, German exporters are hampered by weak sterling’s business.
According to VDA, German passenger car exports to the UK in 2018 dropped by more than 100,000 units to just 666,000 units, but passenger car production by German manufacturers in the UK rose slightly by 10,000 to 248,000 units.
Brexit has made itself noticeable even in the German electrical industry. The division’s exports to the United Kingdom fell in the year 2018 – according to ZVEI – by 1.6% to only 11.1 billion euros. Among the top 10 destinations in the industry, only Britain saw a decline. Total electrical exports rose by 5.0% in 2018 to € 211.9 billion.
The German Engineering Federation (VDMA) was able to increase its exports to the United Kingdom by 5.1% to 7.7 billion euros in 2018, due to the pullback effects of Brexit. Companies in the UK have increased their inventories or preferred orders, it goes on to say. In 2017, UK exports by German engineering companies dropped by 2.0% to € 7.3 billion.
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Russia and Turkey disappoint
In the case of Russian exports, given the ongoing sanctions, the upward trend observed in 2017 is now flattening again. German exports only increased marginally to 25.9 billion euros. For comparison: in 2012, goods “Made in Germany” had already been exported to the largest country in the world for more than 38.1 billion euros. German engineering companies also reported a moderate increase in exports of +2.7% for 2018 after +22.0% in the previous year. Russia fell back into position 10 behind Czech Republic in 2018 in the export ranking of VDMA.
Also, the export to Turkey has already experienced much better times. After German exports of 22.4 billion euros were achieved in 2015, deliveries to the Bosporus are already weakening for the third year in a row. In 2018, German exports to Turkey even fell by 10.7% to 19.2 billion euros.
On the other hand, exports to Sweden, partner country of this year’s Hannover Messe, are quite stable. Although there was a slightly decline by 1.5% to 26.3 billion from German exports to the Scandinavian country, VDMA reported a 4.4% increase in business at 3.5 billion euros. The country has meanwhile advanced in the export ranking of mechanical engineers to position 14 ahead of India and Turkey.
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Strong impulses from Asia
The Asian business not only creates some impulse in China. The export in India developed positively in 2018 with +17,0% to 12,5 billion euros, as well as the business with ASEAN member states (11,4% to 28,2 billion euros), particularly with the Philippines (+26,5%), Vietnam (+18,3%) and Singapore (+15,0%).
A strong trade revival is also to be expected from the EU’s free trade agreement with Japan, which came into force at the beginning of February 2019. Exports to Nippon – already the second most important buyer in Asia with exports of over 20 billion euros – are likely to gain considerable momentum, especially as it will be easier to export e.g. vehicles, pharmaceuticals, medical technology and agricultural products in the future.
The EU’s free trade agreement with Korea (Rep.), which came into force in 2011, should be mentioned at this stage. This agreement has made a significant contribution to the fact that German exports to the land of the morning calm have more than doubled since 2009 to 17 billion euros.
Export slump in the Middle East and Africa
The business with UAE (-25.1% to just 8.2 billion euros) continues to experience a sharp collapse and in Saudi Arabia, it also fell sharply by -4.3% to 6.3 billion euros.
The high hopes for the Iran business have not been fulfilled in the view of the new US sanctions. German exports to Teheran fell by 8.8% to only 2.7 billion euros. Up until the export value of 4.4 billion euros reached in 2005, there is still a considerable gap
At the moment, the export from Germany to Africa is developing disappointingly by falling 11% to only 22.6 billion euros in 2018. In South Africa, by far the continent’s most important market, exports have declined by 4.7% to 9.1 billion euros.
Mexico and Brazil flourish
Mexican exports on the other hand continue to expand rising again in 2018 by 7.8% to 13.9 billion euros and even in crisis-ridden Brazil, demand for goods “Made in Germany” rose sharply once again by +11.7% to 9.5 billion euros after years of setbacks. However, there is still some room for improvement in relation to former record levels, as German goods were exported to the country at the Sugarloaf for more than 10 billion euros in 2014. Exports to Chile are also experiencing a significant upturn with + 16.4% to 2.7 billion euros, while expectations of a further recovery in exports to Argentina in 2018 at -1.3% to just 2.9 billion euros have not been fulfilled.
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Source: Destatits, Verband Deutscher Maschinen und Anlagenbau (VDMA)
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Source: Verband der Automobilindustrie (VDA)
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Source: Destatis and calculations of the Zentralverband Elektrotechnik- und Elektronikindustrie (ZVEI)