Friday, 16 November 2012

The Effects of Recession on German Exports

Let's admit it. Germany one of the most well-off nations in Europe at the moment. The monetary value of its exports rank it as the second country in the world after China. Yet, although it has been mentioned that Germany has been lucky to have demand for its products rise due to emerging economies the data might suggest something different. In total Germany exported goods values about €1.061 trillion in 2011. Here is the list of the top 20 country to which Germany has exported goods:
Source: Statistischess Bundesamt, Wiesbaden.
As you may France, the Netherlands, Italy, Belgium and Spain account for about €350 billion of German exports. Why did I just select these countries? Well, France's economy is at the brink of recession, with zero growth over the last two quarters, Belgium has already initiated austerity programs and has seen its GDP contract by 0.2% last quarter and the Netherlands have just resurfaced from recession. And the reasons are obvious for Italy and Spain. (second quarter data can be found here)

Even if we just measure the most distressed nations in the Union (Greece, Spain, Italy, Portugal, Cyprus and Ireland) the total amount of exports to those nations is €112 billion, more than 10% of total exports.

The above graph shows the percentage of intra-EU and extra-EU trade per country. As you may see, about 60-65% of Germany's exports are within the EU. The only nations which have a high percentage of non-EU exports are Greece, Italy and the UK.

What is my point here? That when recession hits a nations, the first thing that falls is imports. And to nations who depend on each other for imports and exports, this is of tremendous importance. Imagine what would happen if suddenly all 6 of the above nations saw demand for foreign goods collapse (and need I remind you that with the possible exception of Ireland we are talking about countries who are producing and exporting great amounts of food and cheap clothing so we can assume that they are importing goods whose demand is elastic, i.e. can vary according to price or buying power) then Germany will lose a vast amount of its trade. And when this happens then I am sure that France and Belgium will be the next places where demand for imports will fall as well.

I do believe that Europe is now facing its own Great Depression. As no measures have been taken, it would be easy to see that an EU-wide recession will eventually set up. Although Germany now has a very strong economy, as so do the Scandinavian nations, the correlations between nations are so strong that one severe recession in one country can cause a domino effect. Time will indeed show...

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