Ukraine war hits Germany – with insight from The Wall Street Journal

Use Spotify? Access BizNews podcasts here..Use Apple Podcasts? Access BizNews podcasts here..___STEADY_PAYWALL___.Ukraine War Hits Germany With First Trade Deficit in Over Three Decades.Fallout from Russia's war in Ukraine sent Germany's import bill for energy sharply higher, but its deficit with China also widened.By Paul Hannon.Germany posted a trade deficit for the first time in more than three decades in May, underlining the impact of the Ukraine war on Europe's largest economy, whose reliance on exports and manufacturing have become a vulnerability..Adjusted for seasonal variations, Germany's goods exports fell by 0.5% from April, while its imports rose by 2.7%. As a result, the industrial powerhouse had a trade deficit of 1 billion euros, equivalent to around $1 billion. It posted a surplus of €3.1 billion in April this year and €13.4 billion in May 2021..It was the first month in which imports have exceeded exports since 1991, shortly after German reunification. The surprise swing adds to other economic headwinds, including the impact of high energy prices on household spending and the threat of natural-gas rationing if Russia continues to withhold supplies.."The macro data of late shows how structurally reliant Germany is on foreign demand as well as on foreign supply of raw materials, energy and intermediates," said Oliver Rakau, an economist at Oxford economics. "On all fronts, the status-quo is being challenged.".Global trade flows continue to be disrupted by the pandemic, particularly by lockdowns in China. However, the data suggest overseas businesses are having little difficulty selling to German buyers.."Supplies are clearly getting into Germany, although it is possible exports are missing some components," said Paul Donovan, chief economist at UBS Global Wealth Management..The turnaround in Germany's trade balance was partly driven by surging energy prices, as Russia prepared for and then carried out its Ukraine invasion. That led to a jump in the value of imports from Russia and other energy suppliers, while Germany's exports to Russia fell sharply as a result of the sanctions imposed by Western governments. Over the five months through May, German imports from Russia were up 54.5% from the comparable period a year earlier, while its exports to the country were down 29.8%..However, German's deficit with China has also widened in 2022. In May, imports from the world's second-largest economy were up 35% from January, while Germany's exports to China were little changed..By contrast, Germany's surplus with the U.S. has increased, with its exports up by more than a fifth between January and May. Many German exporters increased their focus on the U.S. market after Beijing's strict no-Covid policy clouded China's economic prospects earlier this year..Nonetheless, the outlook for exports appears to be weakening as the global economy slows and fears of recession in the U.S. and Europe grow. A survey of German manufacturers released Friday showed that export orders fell in June for a fourth-consecutive month..Some of Germany's main trade partners had been unhappy with its longstanding surplus, seeing it as a sign that the country wasn't doing enough to support demand at home, relying instead on overseas buyers. Political leaders fear that persistent trade deficits can be associated with jobs losses as the goods consumed by households are made elsewhere..In June, the U.S. Treasury listed Germany among 12 countries that "merit close attention to their currency practices and macroeconomic policies." The Treasury estimated that Germany's trade surplus with the U.S. widened to $73 billion in 2021 from $57 billion in 2020, contributing to a current account surplus equivalent to 7.6% of gross domestic product.."In 2021, Germany's external position was stronger than warranted by economic fundamentals and desirable policies," the Treasury said in its regular report on major trading partners..RELATED.WATCH: Months after seizing Snake Island, Russian forces abandoned the strategic territory in the Black Sea, following repeated Ukrainian attacks. Satellite images show how the tiny island became a key battleground in the conflict.

Ukraine war hits Germany – with insight from The Wall Street Journal

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