- German economic indicators are particularly well-placed as precursors of global trade momentum, thanks to a combination of the economy’s key characteristics. Volumes clearly matter: with a share in global exports of 8%, Germany is the world’s third-largest exporter. However, proxy power is also a result of the German economy’s trade openness, as well as the broad-based nature of its exports – in terms of sectors and trade partners. As a result, German economic indicators arguably contain a high information content on global trade activity.
- To gauge current global trade momentum, we built a proprietary model based on German economic indicators. Our results suggest that after broadly stabilizing in spring 2019, the trade recession continued in Q2 2019 (-0.8% q/q). With key surveys and indicators for the German economy continuing their downward trend – the latest reading of German new manufacturing orders at -8.6% y/y showed the sharpest annual decline in almost a decade – and in spite of clear idiosyncrasies (homegrown car sector troubles etc.), it looks like global trade is unlikely to recover in the next quarter.
The German economy is the ultimate bellwether for global trade momentum
Global trade determines to a significant degree the outlook for Germany’s export-dependent economy. This was highlighted by the sharp slowdown in German growth momentum in late 2018 when world trade slipped into recession. However, given the German economy’s tight integration in the global economic system, there is good reason to believe that the country’s economic indicators are also particularly useful precursors of global trade momentum, with proxy power derived from a combination of key characteristics: a large export sector, a high degree of openness and strong export diversification.
- Large export sector
This does not come as a surprise: The more a country exports, the better it should be able to serve as a proxy for global trade dynamics. With a share in global exports of 8%, Germany is the world’s third-largest exporter. As recently as the year 2008, Germany held the title “world export champion” for selling more goods abroad than any other country. However, it has since fallen back to third place after being overtaken first by China, in 2009, and then the US in 2010.