German Trade Balance: More Than Meets the Eye?

Alan Penny

9 December 2019

3 min read

  • German Trade Balance surprises to upside
  • German economy highly sensitive to exports
  • Perhaps signs of the EU picking up?

During the early hours of Monday, the market received the German Trade Balance figures for the previous month, coming in higher than anticipated. While not necessarily thought of as a major economic indicator, the fact that the German economy is the lifeblood of the European Union means that all things German should be watched when looking for signs of a potential turnaround in Europe itself.

The announcement

The German Trade Balance for November came out at €20.6 billion, much stronger than the anticipated €19.0 billion. The previous month was also revised higher from €18.7 billion to €19.2 billion. This suggests that German exports are starting to pick up a little bit. Although not at historic highs, it does suggest that the European economy could be stabilizing as Germany is highly sensitive to the export market. The trade war between the United States and China has had a massive influence on what happens with German exports, so much so that German companies are starting to move production away from China.

German companies are starting to move production away from China

That being said, the Exodus from China is probably more or less a longer-term situation. Ultimately, this is a market that is changing, as supply chains are causing major issues. The situation between the Americans and the Chinese is for the immediate term, but China is going to be losing a lot of manufacturing.

That is because the wages in China are rising, there is significant government interference, and a whole list of other issues. The fact that the Germans have done better over the last several months in the export market shows that they are starting to turn things around in what is going to be a very difficult environment from start to finish.

The main take away

The main take away from the announcement is that it is yet another signal that perhaps the German economy is turning around. Remember that Germany is more than 80% of the GDP when it comes to the European Union, so that has a major influence on what happens with the Euro and of course stock markets in the European Union.

While not necessarily a sign to start buying everything European, it does suggest that perhaps the European Union is starting to bottom out in general, and that value investing can be a way forward in this type of environment.

There are plenty of governments around the world trying to stimulate, and that should help with consumption longer term. When thinking of Europe, Germany should come to mind first, and the idea that the currency market may eventually show the same type of proclivities as well.

That being said though, as long as there is a lot of fear out there it makes sense that the US dollar will have a bit of strength in and of itself. So more than likely bullish pressure will show up in stocks first, and then perhaps later on in the currency markets.

Written By
Alan Penny

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