German exports fall more than expected in December

German exports fell more than expected in December due to weak global demand, data from the Federal Statistics Office showed on Monday. Germany's ailing economy had a bumpy start to the year with exports sinking, farmers launching nationwide protests, train drivers striking for days and heated debates among coalition partners on how to foster economic growth.
Exports fell by 4.6 per cent in December compared with the previous month. 

Exports to EU countries fell by 5.5 per cent compared with the previous month, while exports to countries outside the EU declined by 3.5 per cent, the office said. Imports fell by 6.7 per cent from November, the federal statistics office reported, versus analysts' expectations for a 1.5 per cent decline. "These are recessionary numbers, consistent with overall difficult economic conditions in the German economy," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

The foreign trade balance showed a calendar- and seasonally adjusted surplus of 22.2 billion euros ($23.92 billion) in December, versus a surplus of 20.8 billion euros the previous month.
Germany's trade surplus in goods climbed further at the end of 2023, adding to the evidence that net exports were a significant help to GDP growth in the fourth quarter, "even if it did little to prevent an overall fall in economic output", said Vistesen.

RECESSION WARNING

Gross domestic product contracted by 0.3 per cent in the fourth quarter compared to the previous quarter, prompting economists to warn of another recession. The sickly state of the German economy is the next big challenge for the export-reliant countries of central Europe. Close trade ties with Germany and its once-mighty auto sector were for years a boon for the region since the collapse of communism. But now those ties risk becoming a drag on the economies of Hungary, Czech Republic and Slovakia.

In 2023, exports were down 1.4 per cent compared with 2022, while imports to Germany experienced a much sharper decline of 9.7 per cent. "The global economy is too weak to provide any momentum," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe. It is already looking like another difficult year for the export sector. "The tensions in the Red Sea are creating new trade risks," said Krueger. Sentiment in the German export industry has clouded over and most industries still expect exports to decline in the coming months. The Ifo export expectations index fell to minus 8.4 points in January from minus 7.1 points in December.

"The German export economy is off to a worse start in the new year," said Klaus Wohlrabe, head of surveys at Ifo. "Exporters need fresh momentum." Sentiment among small and mid-sized businesses in Germany, hard-hit by massive cost increases, weak demand and high interest rates, continued to deteriorate at the start of the new year, according to the KfW-Ifo SME Barometer on Friday.

Morale among the "Mittelstand" companies that form the backbone of the German economy fell in January, reflecting the uncertainty in the euro zone's largest economy, said KfW's chief economist Fritzi Koehler-Geib. The weakness in global demand is also taking its toll in manufacturing. In January, 36.9 per cent of manufacturing companies reported a lack of orders, up from 36.0 per cent in October, according to Ifo's surveys.

The situation isn't better in the services sector. Business activity in the German services sector declined in January for the fourth consecutive month due to weakness in demand, a survey showed on Monday. The HCOB final services Purchasing Managers' Index (PMI) fell to 47.7 in January from 49.3 in December, pointing to a faster contraction in activity. The economic slowdown in Germany is also evidenced by the downbeat assessment in Vodafone's trading statement. Vodafone said service revenue growth in Germany slowed sharply to 0.3 per cent in the third quarter, three months after its biggest market returned to growth.