Germany set to record world's largest trade surplus again
Staff Writer |
Germany is set to record the world's largest current account surplus once again in 2018 in spite of growing international criticism of its export-focused growth model, German media reported.
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The reports cited a study by the Munich-based Ifo Institute for Economic Research which calculated that Germany would achieve a current account surplus of $299 billion in 2018.
The country was followed by Japan and the Netherlands in the Ifo ranking with surpluses of $200 billion and $110 billion respectively.
The current account is an important economic indicator that measures the sum of a country's balance of trade (imports and exports) and net income (or losses) from international investments. As already held true for previous years, Ifo explained that Germany's surplus in 2018 would largely owe to the high volume of goods which the country exports abroad.
Ifo expert Christian Grimme estimated that Germany's surplus on trade in goods this year was due to lasting strong demand from foreign customers in the eurozone, the wider European Union (EU) and the United States.
Grimme also noted, however, that the German capital account would also record an $18-billion surplus in 2018 as Germans earned more income on international investments than the volume of funds transferred to other countries.
In contrast to the goods trade and capital accounts, Germany would continue to run its traditional deficit on international trade of services (minus 18 billion euros) which weighed on the overall surplus.
Grimme noted that the United States stood to retain the dubious honor of boasting the world's single largest current account deficit at $420 billion according to the Ifo calculations.
U.S. President Donald Trump and the Washington-based International Monetary Fund have repeatedly criticized Germany for allegedly contributing to global current imbalances by pursuing an export-driven growth model.
The IMF argues that permanent surpluses above six percent of gross domestic product (GDP) endanger economic stability because they imply corresponding deficits and a build-up of international liabilities in other countries.
In an unusual public intervention, IMF chief economist Maurice Obstfeld recently urged German policy makers to take steps to reign in such "excessive surpluses".
Obstfeld warned that a lopsided cycle of capital and trade flows was likely to fuel harmful protectionist policies, like those implemented under the banner of Trump's "America First" doctrine.
At the same time, however, Obstfeld also attacked the United States and the United Kingdom for contributing to the problem on the opposite end of the spectrum by running excessive current account deficits.
Unless surplus and deficit countries do not act quickly and cooperatively to achieve adjustment, imbalances will grow even larger and could potentially provoke a global financial crisis, Obstfeld said.
Consequently, he recommended to Washington and London that they reign in government spending, encourage households to save more, and adopt tighter monetary policy towards this end, while Berlin should simultaneously increase government spending, especially in public infrastructure, to animate companies to invest more at home.
Commenting on the findings on Monday, Grimme similarly highlighted the risks posed by the current situation to Germany's longer-term growth.
"Sustained high current account surpluses can become problematic when international claims cannot be met, for example when foreigners are no longer capable of servicing their borrowing costs," Grimme said. ■