1. German economy booms as protectionist threat goes pop

German economy booms as protectionist threat goes pop

The trade boost comes on top of Germany's vibrant domestic economy which is already supported by a robust labour market, a growing population and record-low borrowing costs, enabled by the European Central Bank's loose monetary policy.

By: | Hamburg | Published: May 2, 2017 3:02 PM
German economy booms as protectionist threat goes pop. (Reuters)

When port manager Axel Mattern looks out onto the Elbe River from his office in Hamburg’s historic warehouse district, he can literally count the rising number of container ships leaving Germany’s biggest harbour. There is an export boom underway, the ships tell him. China, in particular, is “buzzing”, Mattern says. The sharp increase in demand for “Made in Germany” goods from around the world is pushing Europe’s largest economy into overdrive — and, not coincidently, helping dispel worries about rising protectionism under US President Donald Trump.

Some German companies are even considering expanding into the United States, while others reckon the world is big enough for them to thrive even if American trade borders do get tricky. In the first two months of 2017, overall German exports rose 7 percent on the year to 201.2 billion euros ($219.57 billion), driven by a broad-based uptick in demand for top quality German products such as cars and machines.

The trade boost comes on top of Germany’s vibrant domestic economy which is already supported by a robust labour market, a growing population and record-low borrowing costs, enabled by the European Central Bank’s loose monetary policy. Soaring private consumption, increased state spending on refugees and higher construction drove an expansion of 1.9 percent last year, the strongest rate in half a decade and the fastest among the Group of Seven industrialised countries. The economy is still doing well. But it is the jump in trade that most bodes well for 2017.

A breakdown of trade data from the Federal Statistics Office compiled for Reuters shows exports to the United States — Germany’s most important single export destination after the bloc of European Union countries — jumped 9 percent in the first two months of the year to 17.9 billion. Those to China leaped 14 percent to 12.6 billion euros.

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SELF-CONFIDENCE
The U.S. increase comes despite some of the new president’s “America First” campaigning. Trump’s protectionist rhetoric and the dispute about the benefits of free trade are likely to rank high on the agenda of the Group of 20 summit to be held in Hamburg in July.

Concerns among managers in Europe’s economic powerhouse, however, have already eased. “We’re very relaxed about this whole debate about Trump and protectionism,” Mattern said. “If Mr Trump doesn’t want to buy German goods anymore because he thinks he can produce everything at home, we’ll just find other buyers.” Corporate Germany’s self-confidence is backed by data. A survey of some 43,000 consumers in 52 countries conducted by Dalia Research and Statista showed “Made in Germany” is viewed as the most appealing seal of quality in the world.

Senior German government officials also sound less alarmed about U.S. policy after meetings with U.S. counterparts in recent weeks — a notion echoed by ECB President Mario Draghi on Thursday. Chancellor Angela Merkel has even fuelled expectations of a future EU-U.S trade deal, saying she was “very encouraged” talks were being looked at after her recent trip to Washington.

German business leaders such as Anton Boerner from the BGA trade association point out that Trump’s protectionist threats, including the broad-based introduction of punitive tariffs on imports through a border adjustment tax, have failed to translate into policy so far. “There are no concrete measures and this means ‘business as usual’ for companies — at least for now,” Boerner told Reuters.

While uncertainty remains high and is limiting overall private sector investment, at least some companies seem to be viewing political risks as the new normal — and they are pushing ahead with the investment. A survey by the Ifo institute shows German industrial companies plan to increase investment by 5 percent this year, up from 3 percent in 2016.

NEW SITES
Among them are Mittelstand companies, the largely family-owned firms that form the backbone of German industry and make up roughly 98 percent of German export companies.”We plan to open at least one, probably two new production sites in the U.S.,” said Josef Minster, CEO of Schlemmer Group, an automotive supplier specialising in cable protection systems.

The Bavarian-based firm wants to increase its market share in North America and benefit from an expected upturn in the automobile sector there.
Schlemmer is also preparing a takeover of a small U.S. firm which is not yet selling its high-quality niche products abroad. “Together with our expertise and global sales network, we expect to benefit quickly from scaling effects,” Minster said, adding that the takeover would be one of the biggest in the history of the company, founded in 1954.

Schlemmer traditionally aims to produce near its customers’ factories to keep the production chain short. Roller-coaster manufacturer Mack Rides, in contrast, builds every ride in the tiny southern town of Waldkirch in the Black Forest region before shipping them to amusement parks around the world.

Mack Rides plans to invest in its German production site, located near its own theme park called Europa-Park close to the French border, to meet rising global demand. “We’re currently experiencing a sharp upturn in demand from Asia and the Emirates, but also from Europe and the United States,” said CEO Christian von Elverfeldt. The 237-year-old family-run firm has an export rate of 95 percent, meaning rising protectionism and import tariffs surely would be bad for business, the manager admits.

But Elverfeldt said customers value his company’s quality and innovation — such as the recent development of a roller coaster ride with virtual reality glasses. “Even if the U.S. should increase import tariffs, which hopefully will never happen, we’ll be able to easily offset this decline in sales through the fast-growing economies in Asia,” he said.

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