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Germany posting record surplus gives fodder to economy's critics

Monday, February 9, 2015 - 15:10

[FRANKFURT] Germany posted a record current-account surplus in 2014, setting the stage for renewed international calls to address its economic imbalances.

The surplus rose to 215.3 billion euros (US$244 billion) last year from 189.2 billion euros in 2013, the Federal Statistics Office in Wiesbaden said on Monday. That's equal to 7.4 per cent of the country's gross domestic product, and exceeds the 176.7 billion euros China logged.

The data, which come as finance chiefs of the world's leading industrialized and emerging economies meet in Istanbul, are likely to rekindle criticism of Germany's economic policy by institutions such as the International Monetary Fund and the European Commission. At the same time, the country's exporters are in for a further boost as large-scale asset purchases by the European Central Bank will weaken the euro, increasing competitiveness in foreign markets.

"This is not a conscious beggar-thy-neighbor policy," said Carsten Brzeski, chief economist at ING-DiBa AG in Frankfurt.

"Germany has the right product mix at the right time, and on top of that it is helped by the lower euro." The single currency has depreciated 12 per cent against the dollar in 2014 and fell below US$1.11 last month for the first time since September 2003.

Germany's trade surplus was 217 billion euros in 2014, with exports rising 3.7 per cent from 2013 and imports increasing 2 per cent. In December, foreign sales jumped 3.4 per cent from the previous month, while purchases abroad dropped 0.8 per cent.

Germany's export-driven economic model has come under the spotlight on several occasions in recent years. The US Treasury and the IMF have repeatedly rebuked the country for its reliance on foreign trade, while the European Commission started a probe in 2013 into whether Germany is breaching European Union guidelines.

In the past, lawmakers and Chancellor Angela Merkel have responded to this criticism by pointing out that the surplus reflects the competitiveness of German companies - from giants such as Daimler AG and Siemens AG to the myriad of small and medium-sized firms known as the Mittelstand - that cannot be steered by the government.

Germany overtook China as the country with the world's largest current-account surplus in 2011, and has retained the top spot ever since, according to IMF data. While a large portion of German exports went to euro-area peers in the past, that share has diminished after the debt crisis as emerging markets snap up more and more of the country's goods.

Going forward, faster wage growth in recent years and rising internal demand point to a rebalancing of the economy. An aging population, younger generations less focused on saving, and reform efforts bearing fruit in euro-area countries will also impact German exports, according to the Bundesbank.

"Germany will have a positive current-account balance for the foreseeable future," the Frankfurt-based central bank wrote in its monthly report for January 2015. "Nevertheless, the size of the surplus should fall in the medium term."

BLOOMBERG

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