Mounting Pressure for Germany to Increase Imports

November 7, 2013  |  No Comments  |  by Nicole àBeckett  |  Blog

The U.S. Treasury Department criticized Germany in a report to congress last week  for its continued intense focus on exports as a growth model for the country. In stable economic times, this would be agreed upon as sound policy. However these are not stable times for Europe and Germany’s trade surplus means the healthy economy is not consuming as many imports from its neighbors as it could be while benefitting even more from an artificially low exchange-rate. The International Monetary Fund joined in the criticism.

Germany’s trade surplus was 7 percent of GDP in 2012 compared to a deficit of 3 percent for the U.S., according to Trading Economics. Countries recording a strong current account surplus have an economy heavily dependent on exports revenues, with high savings ratings but weak domestic demand. Countries recording a current account deficit have strong imports, a low saving rates and high personal consumption rates as a percentage of disposable incomes.

While Germany bristled at the criticism, it is only a matter of time before the mounting pressure forces the European Commission to act. Increased domestic demand from Germany will help recalibrate the Euro Zone trade balance and also serve to benefit American exporters, maybe even more so than Germany’s European neighbors.

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