The slowdown in China and its impact on Europe

Chart 1
Chart 1

After the outbreak of the global financial crisis (late 2008), the traditional extrovert German economy was faced with a significant drop in demand for its products. The subsequent reduction in production activity equilibrated mainly because of strengthening investment and domestic consumption (private and public), as shown in Chart 1 below. Gradually, the resurgence of the global economy on a positive track reinstated the contribution of the external sector to GDP in positive territory.

Chart 1. Contribution of different variables in the growth rates of the German GDP.

Chart 1

Chart 1

However, stimulating demand for German products abroad, did not occur from normal (until the outbreak of the crisis) customers of German companies, the countries of the EU and eurozone members. In contrast, the decline in demand due to the debt crisis drove European economies at lower levels of absorption German products.

The steady deceleration in exports of German companies in Europe offset by orders outside the European Union. From Chart 2 it shows that, with few exceptions, positive contribution to German GDP (reinforcing net exports) establish exclusive exports to countries outside the European Union.

Chart 2. Contribution of international trading partners of Germany in the growth rates of GDP.

Chart 2

Chart 2

A more detailed analysis of the trade relations of Germany (Chart 3) demonstrates that enhancing the demand for German exports in the last decade comes exclusively from emerging economies (and which continued to achieve significantly higher growth rates compared with the western world) and which were in German industry technological expertise is necessary for the continuation of their development path.

Among them, he could not stand the Chinese economy: China in 2003 accounted for less than 3% of German exports. The corresponding figure in 2012 more than doubled to 6% of total exports of the German economy (Chart 3).

Despite the success of the German business sector to expand the customer base of the fastest growing economies of the world, the export potential of the country in the last one year remains in decline (Chart 1 and 2), which is obviously related when the slowdown begins to appear, both in China and other developing economies.

Therefore, the potential escalation of global growth creates legitimate concerns about the state of the German economy and the impact it will have on the entire continent: As mentioned previously, given the weak domestic demand and low funding levels in the countries of the European region, key parameter to alleviate the impact of the eurozone crisis is the strengthening of growth rates in Northern Europe.

Chart 3. Countries with the highest levels of German exports products to total exports of Germany (2003 and difference between the levels of 2003 and 2012). The ranking of countries has been based on the relative level of exports in 2003.

Chart 3

Chart 3

Predicting future course of emerging economies (import of which has been invested by the German business sector) in the next few years is anyway difficult effort that goes beyond the scope of this document. Nevertheless, we try to identify those countries that rely so much on their commercial ties with the German industrial base, threatened in a slowdown of the German export machine.

Chart 4. Exports of selected countries to Germany in relation to their total GDP.

Chart 4

Chart 4

By Nicole P.

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