IN BRIEF

  • Germany’s exporters are experiencing rising cost pressures thanks to a pick-up in wages in response to record low unemployment. But in the near-term, these pressures will be offset by the weak euro.
  • The share of German exports to the Eurozone has declined over recent years and this process will continue in years to come. By 2030, our forecasts imply that China will be the country’s biggest export market, replacing France.
  • The growing use of electronics by businesses and households, combined with continued innovation and development, will ensure that exports and imports of electronics will expand more quickly than total export and import flows.

Germany has had a sustained period of wage restraint since entering the Eurozone and this, combined with the weakness of the euro and strengthening trade links with economies outside the currency bloc, should ensure that export growth continues to expand strongly. But strengthening wage growth and adverse demographics are leading to skills shortages and over time could undermine Germany’s strong export sector.

LONG-TERM OUTLOOK

Economic Outlook – Germany appears on track to broadly match last year’s 1.6% rise in GDP both this year and next and the economy’s traditional driver of growth – exports – will play a role in this expansion. Past wage restraint and labour market reforms leave German exporters in a competitive position. While strong wage growth by developed world standards and weak productivity do not bode well, this will be offset by the weak euro.

Relative to other Eurozone economies, a large share of exports go to non-Eurozone economies. Not only does this mean that Germany will gain more than most from the weakness of the currency, greater trade links with faster growing non-Eurozone economies should also bode well for medium-term export prospects. Germany scores highly on ‘trading across borders’ in the World Bank’s ‘Doing Business’ Report, ranking 18th out of 189, perhaps suggesting that Germany will be a winner from further global trade liberalisation and in particular the potential agreement of the Transatlantic Trade and Investment Partnership (TTIP), which aims to reduce non-tariff barriers between the US and EU.

Nonetheless, in the ten years to 2030, we expect GDP growth to average just 1.1%, rather weaker than the projected rises in other developed economies, reflecting particularly adverse demographics. A falling labour force could lead to skills shortages and encourage firms to move production abroad, which would further constrain the pace of export growth.

Export Corridors to watch – Over the next five years the industrial machinery and transport equipment sectors will remain the key drivers of export growth, accounting for over 70% of the increase in total goods exports. While the contribution share will moderate over the following decade, these sectors will continue to dominate German exports. Chemicals’ share of export growth will also decline, in part reflecting high energy costs in Germany that may prompt production in the energy intensive sector to shift abroad. These declines will be offset by small rises in the contributions from a wide range of other sectors.

Sector contribution to increase in exports

The developing world and Asia in particular will be Germany’s fastest growing export markets over the forecast period. In the decade to 2030, the two destinations that will record the strongest increases in demand for German export will be China and Vietnam – export growth to both economies will exceed 8% per year.

Top 5 Hotlist Export Destinations

Rank

2013

2030

1

France

China

2

UK

France

3

USA

USA

4

China

UK

5

Poland

Poland

*Ranking among the 24 trade partners covered in the HSBC Trade Forecast

Although the large and nearby markets of France and the UK will remain key export destinations for Germany, their importance among the other 24 countries covered in this survey will fall. Despite merchandise exports to France being 80% higher than those to China in 2013, modest growth in exports to the former combined with robust export growth to the latter will ensure that by 2030 China is Germany’s single biggest export market, while France falls to 2nd place and the UK slips to 4th.

Import Corridors to watch – Like exports, German import demand growth will be dominated by the industrial machinery and transport sectors and manufactured goods. Food, animals, beverages and tobacco will become smaller import drivers as the population shrinks.

Sector contribution to increase in imports

Asia will be the fastest-growing origin of merchandise imports for Germany. Between 2020 and 2030, the value of imports from China, Vietnam and Bangladesh will grow by 7-8% per year. Strong growth in imports from China will mean that it also becomes the biggest source of German imports by 2030 (among the 24 other countries covered by this survey), pushing France down into 2nd place, with Poland remaining the third most important source of imports.

Top 5 Hotlist Import Origins

Rank

2013

2030

1

France

China

2

China

France

3

Poland

Poland

4

USA

USA

5

UK

UK

*Ranking among the 24 trade partners covered in the HSBC Trade Forecast

FOCUS ON ELECTRONICS

  • The German government has set out plans to fully capitalise on the potential of ICT to boost growth and employment, by improving infrastructure and expanding R&D in the sector. Reflecting the country’s strong focus on promoting usage of technology, the 2015 Global Information Technology Report jointly commissioned by the World Economic Forum and the International Graduate Business School ranked Germany in 13th place out of 143 countries ranked for the potential to exploit the benefits of ICT products.
  • On the other hand, Germany was only ranked in 31st place in the business and innovation ranking, which amongst other things takes into account technology availability for business, suggesting that further progress could be made.
  • The importance of electronic goods both for personal and business use, combined with continued product innovation, is likely to ensure that both exports and imports of electronics expand more quickly than Germany’s overall trade growth between now and 2030. Moreover, the potential expansion of the WTO’s Information Technology Agreement (ITA) to reduce the duties on an additional 200 products would further encourage trade growth in the sector.
  • Germany is currently a net exporter of electronic goods, although the surplus has been narrowing as import growth has outpaced export growth over recent years. We expect this trend to continue over the coming years. Between 2015 and 2030, exports of electronic goods are expected to grow by nearly 5% per year compared to a little over 5% per year for imports. Nonetheless by 2030, Germany is still expected to run a small surplus in the sector.

Trade in electronic goods

About the HSBC Trade Forecast – Modelled by Oxford Economics

Oxford Economics has tailored a unique service for HSBC which forecasts bilateral trade in goods, based on HSBC’s own analysis and forecasts of the world economy. A top-down approach is employed, with Oxford Economics’ suite of models used to ensure consistency between HSBC’s forecasts for economic growth and exchange rates in key countries and the more granular projections for bilateral trade flows presented here.

Oxford Economics employs a global modelling framework, with headline bilateral trade forecasts constructed as a function of final demand in the destination market and the exporter’s competitiveness (as measured by relative unit labour costs). Exports, imports and trade balances are identified, with both historical estimates and forecasts for the periods 2015-20 and 2021-30.

These headline bilateral trade forecasts are also disaggregated by sector, using Oxford Economics’ Industry forecasts to inform future production trends. Sectors are classified according to the UN’s Standard International Trade Classifications (SITC) system at the two-digit level and grouped into 30 sector headings.

Oxford Economics produces a global report for HSBC, as well as country specific reports on the following 23 countries: Hong Kong, China, Australia, Indonesia, Malaysia, India, Singapore, Vietnam, Bangladesh, Canada, USA, Brazil, Mexico, Argentina, UK, France, Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia, and Egypt. The analysis also includes trade with Japan and Korea for a total sample of 25 key trading nations.

All trade flows data are reported in nominal US-dollar value terms (using market exchange rates) unless otherwise specified. This means that fluctuations in a country’s terms-of-trade due to relative price and exchange rate effects are reflected in the data.

Sector Focus – Methodology 
This report also includes a special section on the electronics industry. Based on the same underlying forecasts used for the existing analysis of trends in bilateral trade flows, the report examines how exports/imports of these products are expected to evolve over time. The definition used in the report for the electronics sector is below:

  • SITC 75 – Office machines and automatic data-processing machines 
  • SITC 76 – Telecommunications equipment 
  • SITC 77 – Electrical machinery 
  • SITC 87 – Professional, scientific and controlling instruments 
  • SITC 88 – Photographic apparatus, equipment and supplies and optical goods

This document is issued by HSBC Bank plc. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. The views and opinions expressed by contributors are their own and not necessarily those of HSBC Bank plc. Under no circumstances will HSBC Bank plc or the contributors be liable for any loss caused by reliance on any opinion or statement made in this document.