x Abu Dhabi, UAEWednesday 24 January 2018

US and France point finger at German export surplus

Germany has no intention of putting the brakes on its strong export sector, to the consternation of other countries.

A worker assembles artificial hands for Otto Bock. The company has a 60 per cent market share for artificial limbs.
A worker assembles artificial hands for Otto Bock. The company has a 60 per cent market share for artificial limbs.

In a forecast that must have irked the US government, the German foreign trade association, BGA, last week predicted German exports will jump 16 per cent this year to €937 billion (Dh4.7 trillion) and clear the €1tn level for the first time next year.

German exports are booming because its industry churns out precisely what the world's rapidly growing emerging economies need and want: specialised machinery, industrial plants, environmental and medical technology, luxury vehicles and quality stuffed toys.

Europe's largest economy is projected to grow by about 3.5 per cent this year, the strongest increase since unification in 1990, because sales to China, India and Brazil are surging. In September, exports to states outside the 27-nation EU bloc jumped 37.7 per cent compared with the same month last year.

Germany's persistent trade surplus has added to the atmosphere of mutual distrust engulfing the global economy. France and the US have accused Germany of growing at their expense. They say it is worsening economic imbalances by refusing to stimulate its own domestic demand and boost imports.

At the summit of the Group of 20 developed and emerging economies in Seoul this month, Angela Merkel, the German chancellor, strongly resisted fixed caps on trade surpluses that Barack Obama, the US president, had been pushing for.

Germany's surpluses don't stem from currency manipulation or the ownership of natural resources such as oil, but from the ingenuity and industriousness of its companies and workforce.

It is difficult to counter the argument made by German government officials and corporate executives that they should not be punished for producing goods the world evidently wants to buy.

There are a number of reasons for this. They include a tradition of strong links between science and industry that dates back to the industrial revolution of the 19th century.

A long-term approach to business is another factor behind the success of many German companies. Executives here have always failed to fathom the Anglo-Saxon focus on quarterly results, and are ready to wait years for an investment to yield the desired return.

The high proportion of medium-sized industrial companies that are family-owned also fosters long-term thinking, because the proprietors think in terms of generations and have quietly kept on refining their products until they dominate the niche markets in which they operate.

Few people even in Germany will have heard of Otto Bock, a healthcare company based in the central town of Duderstadt. But it commands a 60 per cent share of the global market for artificial limbs. Founded in 1919 and family-owned, it has had only three managers in 90 years. There are hundreds of similar examples in Germany.

The country has learnt that its knowhow is its most valuable resource, and it knows how to protect that.

A strong focus on specialised made-to-measure industrial machinery gives German companies an added edge, as does a readiness to invest in future technologies. German industry covers 30 per cent of the world's market for wind power systems and 70 per cent for solar modules.

Mrs Merkel will continue to resist any caps on trade surpluses. To agree to them would be political suicide. Still, economists are warning that the strength of Germany's export sector poses risks, and that growth is likely to tail off in the coming years.

Austerity measures in Europe, which still buys three quarters of German exports, are likely to squeeze demand for products made in Germany and the currency dispute between the US and China is set to keep driving up the euro, rendering exports outside the 16-nation euro zone more expensive.

Mrs Merkel's G20 rivals would presumably greet such a development with a dose of schadenfreude.