German export industry back on the road to recovery, with emerging markets gaining in importance
Comment of the Day

April 30 2010

Commentary by Eoin Treacy

German export industry back on the road to recovery, with emerging markets gaining in importance

This article by Steven Schott and Jochen Möbert for Deutsche Bank, written from a German perspective, highlights the importance of Eurozone trade to Germany. Here is a section
As the individual countries fared differently both during the slump and in the recovery phase, country rankings have also changed. The US lost its second place and now ranks fifth behind France, the UK, the Netherlands and Italy. China, by contrast, moved up from eleventh to eighth place and continues to make headway. Nonetheless, the US and the European countries will remain Germany's main export markets over the next few years. Pre-crisis growth in exports to these countries, however, was already weaker - at 4% to 6% p.a. from 1991 to 2009 - than the increase in exports to the emerging markets. The crisis simply reinforced an already existing trend. Over the next few years exports to China will likely keep up their impressive momentum (+19% p.a. between 1991 and 2009). China's share in German exports of currently about 5% could thus double in just six years.

Eoin Treacy's view The incomplete table from this article suggests that approximately half of all German exports are to the Eurozone. This figure helps to put into perspective the benefit to German's export sector of being able to eliminate exchange rate risk from such a large portion of its business. The corollary would be that, Nord Rhine Westphalia's imminent election aside, it is in Germany's interests to do what is necessary to ensure that the Euro survives as a viable currency, which at the moment means bailing out Greece.

As for the other half of its exports, the recent weakness of the single currency is a tailwind for companies consolidating foreign earnings in the Euro. Germany has a large number of globally significant companies that stand to benefit from the Euro's weakness, not least Siemens. The share bounced from the €70 area this week and would need to sustain a move below that level to question scope for additional upside.

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