German trade surplus shrinks amid Ukraine war and energy crisis

Germany's much-vaunted trade surplus shrank in 2022, official data showed Thursday, as soaring energy prices in the wake of the Ukraine war pushed up the cost of imports.

Cargo ships in Lubmin
Cargo ships in the harbour in Lubmin, Mecklenburg Western-Pomerania. Photo: picture alliance/dpa | Stefan Sauer

Germany exported goods to the value of €1.56 trillion, up 14 percent on a year earlier, federal statistics agency Destatis said in seasonally adjusted figures.

But imports rose by more than 24 percent to €1.48 trillion, resulting in a trade surplus of €76 billion.

Destatis said it was “the lowest surplus” since 2000 and down by more than half compared with last year’s €173.3 billion figure.

The bill for imports rose much more strongly “on account of the sharply increased prices of energy” following Russia’s invasion of Ukraine, the agency said.

READ ALSO: Why fears of a recession in Germany are rising

It is the fifth consecutive year that the trade surplus has narrowed in Europe’s biggest economy, it added.

The United States remained the top destination for “made in Germany goods”, while China was once again the largest source of imports.

The shrinking surplus in export champion Germany comes at a time of growing concern about the competitiveness of European companies in the face of US plans for a major subsidy package to green its economy.

The European Union is working on proposals to counter the threat, including a possible relaxation of state aid rules.

Germany’s BDI industry association on Thursday called for “swift, concrete results” on the issue.

It also urged the government to pursue EU-level trade agreements with “important partners” such as Latin American countries, India or Indonesia to diversify trade ties.

“The aim must be to drive forward the internationalisation of the German economy,” it said.

READ ALSO: Germany sees record post-war inflation in 2022

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Inflation in Germany eases due to lower energy prices

Inflation slowed in Germany in March as energy prices fell, official data showed Thursday, adding to hopes that the eurozone was past the worst of the price increases.

Inflation in Germany eases due to lower energy prices

Price growth in Europe’s largest economy eased to 7.4 percent year-on-year this month, according to preliminary data from federal statistics agency Destatis.

In January and February, Germany’s inflation rate had held steady at 8.7 percent.

While food prices continued to show “above-average growth” this month, the increase in energy prices had “slowed considerably” compared with March 2022, when Russia’s invasion of Ukraine sent energy costs surging, Destatis said.

Analysts surveyed by financial data firm FactSet had expected a bigger drop in inflation, at 7.3 percent.

The latest figures showed that “the pass-through of higher energy prices into higher consumer prices is starting to lose strength,” said ING economist Wouter Thierie.

Moreover, pressures on global supply chains have further eased in recent months to pre-pandemic levels, which is also dampening inflation.”

With inflation across the eurozone still well above the European Central Bank’s two-percent target, the bank is expected to keep raising interest rates.

The size of the ECB’s next rate hike remains unclear, however, especially after recent turmoil in the banking sector highlighted the pain of higher borrowing costs on the economy.

Following this month’s hike by half a percentage point, many observers see the ECB downshifting and opting for a smaller rate rise at the next meeting in May.

READ ALSO: Why 2023 will be a better year to grow your savings in Germany

“In the coming months, the inflation rate is likely to ease somewhat due to the effect of energy prices, but the price pressure on non-energy goods will probably persist,” said LBBW economist Jean-Oliver Niklasch.

For Germany’s inflation rate, “we hope that by the end of the year there will be at most a three in front of the decimal point,” he added.