Tuesday, January 09, 2007

German Trade Surplus Increasing Sharply

Germany's trade surplus increased sharply in November 2006, to €18,5 billion, compared to €13.0 billion the year before. The rise was somewhat smaller, from €10.1 billion to €14.9 billion if you add in services and "supplementary trade items", but the increase is nevertheless dramatic.

This increase is very recent. During the latest 3 months, calendar- and seasonally adjusted exports have risen 8,6%, whereas imports have actually fallen 0,6%. With the year over year increase being roughly €5 billion both October and November, this implies that if this is kept up in December too, net exports will add nearly 3%:points to growth. Which in turn implies that even if domestic demand increases only slowly, German GDP growth will accelerate to a multi year high during Q4 2006. This again confirms what I just wrote about Germany's strong growth momentum.

It also implies that tomorrow's U.S. trade deficit report will show a sharp increase from the relatively low level in October. If you add the $6.5 billion year over year increase in the German trade surplus to the more than $10 billion increase in the Chinese trade surplus, and increases in the trade surpluses of Japan, South Korea and Taiwan you get a total of $20 billion increase. Since trade balances are zero sum games, this means that there has to be a total $20 billion weakening of trade balances elsewhere. While not all of this is likely to be in the U.S., certainly a significant portion of it will come from there.

UPDATE: It seems as though my forecast about the U.S. trade incorrect was incorrect. Indeed, the U.S. deficit was in fact several billion dollars lower than in November 2005. Which leaves us with the question as to where the gap of now $25 billion is to be found. Britain reported a roughly $1 billion in its deficit and Denmark reported a few hundred million dollars in reduced surplus. But that still leaves us with $23-24 billion in statistical discrepancy. That would require implasusibly high deteriorations in other countries' trade balances.


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