Brexit and Donald Trump: no need to panic

EU and ASEAN countries step into the breach - by Ernst Leiste

“Cologne – German exports are proving to be holding up extremely well despite growing concerns about the direction in which the global economy is heading. They again increased in the first half of 2018 by 4.0% compared to the previous year to 662.9 billion Euros, after a new export record for products “Made in Germany” of nearly 1.3 trillion Euros had been set in 2017 for the fifth year in a row. And this was achieved despite the fact that Brexit concerns, looming US anti-dumping tariffs, sanctions on Russia and weakening USD and GBP exchange rates are making life increasingly tougher for German exporters.”

But given that the export-focused German medium-sized business sector is again increasing its involvement in traditional markets, prospects for the near future don’t appear to be too gloomy, despite the many imponderables.

Business with the EU is picking up

Revitalized business with other EU countries and with the Eurozone in particular is contributing to this outlook. According to provisional Destatis figures, exports to the Eurozone again increased in the first half of 2018 by 15 billion Euros or 6.3% to 236.5 billion Euros, while exports to the EU as a whole rose by around 20 billion Euros or 5.4% to 396.5 billion. That means that again nearly 60% of German exports now go to other EU member states. In the first half of 2018 there were remarkable increases in exports to Greece (+11.8%), the Netherlands (10.4%), Italy (+8.6%) and Portugal (+14,0%). Exports to Eastern European countries also continue to exhibit strongly positive momentum: Croatia (+12.2%), Romania (+9.7%), Slovenia (+7.1%), Hungary and Poland (+6.7% each).

German exports by country groups
(in billions of euros, changes compared to previous year in%)

Country of destination1. Half 20171. Half 2018*)Difference
Total637,6662,94,0
Europe437,9459,14,8
of which: EU-countries376,2396,55,4
of which: Euro-Zone236,5251,56,3
Africa13,811,1-20
of which: South Africa5,04,4-10,9
America76,678,32,2
of which: NAFTA-countries66,968,01,7
USA55,756,10,8
Brazil4,04,716,7
Asia102,4106,44,0
of which: ASEAN-countries12,313,711,3
China41,145,410,3
India5,35,77,8
Japan9,59,61,5
Australia und Oceania5,46,315,5
of which: Australia4,75,19,0

*) preliminary figures
Source: Federal Statistical Office, Fachserie 7, Reihe 1, 6/2018

Exports to the United States – Germany’s top export market since 2015 – declined in 2016 by 6.0%, but increased again in 2017 by 4.3%. And in the first half of 2018 exports worth 56.1 billion Euros generated a small increase of 0.8%. To what extent Donald Trump’s threatened or to some extent already imposed punitive tariffs have an impact on German exports to the US remains to be seen, given US preferences for German hi-tech products.

Americans hold German machinery in high regard

At least Americans’ preferences for German machinery are undiminished for now. That’s because German machinery manufacturers increased their deliveries across the Atlantic by a further 5.5% in the first half of 2018 to nearly 9.3 billion Euros, despite President Trump’s demand that US companies and consumers should “buy American”, after they had already increased in 2017 by a remarkable 11.6% to nearly18 billion Euros.

However, exports by German vehicle manufacturers to the USA continue to decline. Around 220,000 cars were shipped to the USA in the first half of 2018 – that is 6% fewer vehicles than in the first half of 2017. However, at the same time, production by German carmakers at US sites has increased since 2013 by 180,000 units to around 800,000 vehicles. That means that exports of German cars to the USA equate to only just over half of what the German carmaking brands are producing at local assembly plants in the USA. At 8.5 billion Euros (-0.9% compared to the previous year), German exports of electrical products to the USA eased off slightly in the first half of 2018. In 2017 they had increased by 5.6% to 17.1 billion Euros.

Brexit vote is having an impact

In contrast, German exports to the United Kingdom are in decline for the third year running. After German exports to the UK declined in 2016 by 3.3%, followed by a further decrease of 2.0% in 2017, the first half of 2018 saw a further reduction of 2.7% to just 42.1 billion Euros. The United Kingdom, which in 2016 was still the third largest taker of German exports has now slipped to fifth behind the Netherlands and PR China. In addition to the uncertainty caused by the imminent Brexit, the weakness of the Pound Sterling is making doing business with the UK tougher for German exporters.

German exports to selected countries
(in million euros, changes compared to previous year in%)

Country of destination1. Half 20171. Half 2018*)Differences
Total
(in billions)
637,6662,94,0
USA55.68256.10,8
France53.40454.1671,4
Netherlands42.20646.60510,4
China41.13345.3710,3
UK43.29342.139-2,7
Italy33.06535.9138,6
Austria31.06832.3544,1
Poland29.04730.9976,7
Switzerland27.70627.224-1,7
Belgium22.74523.0141,2
Spain22.05622.9193,9
Czech Republic21.03221.9764,5
Sweden13.30113.6482,6
Hungary12.70313.5586,7
Russia12.68812.9051,7
Turkey10.45210.954,8
Japan9.5019.6471,5
South Korea8.5928.8372,9
Romania7.388.0999,7
Slovakia6.8047.0273,3
Mexico6.2696.8569,4
India5.3095.7227,8
Australia4.6695.0889,0
Brazil4.014. 68016,7
South Africa4.9774. 433-10,9
UAE5.3953.458-35,9
Saudi Arabia3.3833.206-5,2

*) preliminary figures
Source: Federal Statistical Office (s.o.)

Outside of the EU, exports to China again increased by more than 10% in the first half of 2018. In contrast, the upward trend in exports to Russia that was observed in 2017 has now bottomed out again, given continuing sanctions. Only German machinery manufacturers have reported a double-digit increase in exports at +11.7%.

China is becoming more and more important

In foreign trade terms, the Middle Kingdom is now gaining importance as Germany’s third most important export market and its most important import market. Once again German machinery manufacturers and the electrical industry each increased their exports to China by 12% in the first half of 2018. The German vehicle manufacturing industry also exported 14% more cars to China and that’s despite the fact that well over 4.5 million vehicles from the major carmaking brands already roll off the production lines at local assembly plants in China. That means that for every car that is exported to China, 20 cars are produced there locally by German manufacturers.
Exports to India performed positively in the first half of 2018, increasing by 7.8% to 5.7 billion Euros, as did business with ASEAN countries (+11.7% to 13.7 billion) and with Australia (+9.0% to 5.1 billion). In contrast, business with the UAE is currently undergoing a real slump (-35.9% to just around 3.5 billion Euros), and exports to Saudi Arabia have also declined significantly by 5.2 % to 3.2 billion Euros.

Very disappointing right now are German exports to Africa too, which tumbled 20% to just 11.1 billion Euros in the first half of 2018. Exports to South Africa, by far the most important market on the continent, decreased by 10.9% to 4.4 billion Euros.

In contrast, exports to Mexico, which again increased by 9.4% to 6.9 billion Euros in the first half of 2018, are very much on an upward curve, while demand in crisis-hit Brazil for goods “made in Germany” again increased significantly by 16.7% to 4.7 billion Euros following years of setbacks. However, there is still a long way to go before the record levels of the past are again achieved, because in 2014 German goods worth more than 10 billion Euros were exported to the land of the Sugar Loaf Mountain.

Top 10 export countries of German mechanical engineering
(in billions of euros, changes compared to same period last year in%)

Country2017Change1. Half 2018Change
World total168,17,986,74,3
USA18,011,69,35,5
China17,422,49,212,0
France11,16,85,71,6
Italy7,67,04,112,5
UK7,3-2,03,70,7
Netherlands6,96,93,78,6
Austria6,75,23,51,5
Poland6,26,53,311,6
Russia5,322,02,911,7
Czech Republic5,25,22,6-1,0

Source: Destatis, German Engineering Federation (VDMA)

Top 10 countries in the German car export
(in pieces, change from 1st half year to first half year in%)

Country2017  2018Differences
1. Half2. Half1. Half
UK414.95353.946393.831-5
USA235.577258.066221.466-6
Italy167.971144.37161.464-4
China118.241140.202134.85914
France150.89136.187133.125-12
Spain123.997106.335123.314-1
Belgium and Luxembourg89.68374.01388.009-2
South Korea53.49153.03984.22557
Turkey64.40975.273.49514
Japan64.50976.57672.50312
Pkw-Export total2.225.1502.152.9582.189.651-2%

Source: Verband der Automobilindustrie (VDA)

Top 10 export countries in the German electrical industry
(in billions of euros, changes compared to same period last year in%)

Country2017Difference1. Half 2018*Difference
China19,117,410,212,2
USA17,15,68,5-0,9
France12,97,66,22,0
UK10,95,65,1-0,7
Netherlands10,412,75,414,3
Poland9,713,34,55,9
Austria9,19,24,23,0
Czech Republic9,118,94,63,2
Italy9,03,44,79,5
Spain6,612,43,34,8
World total199,59,6101,74,3

* provisionally

Source: Destatis and calculations of the Zentralverband Elektrotechnik- und Elektronikindustrie (ZVEI)

For many years Ernst Leiste was editor-in-chief at Germany Trade & Invest and he now works as a journalist specializing in export topics.