German Exports Continue To Fall In February

German exports slumped 23.1% year on year in February, indicating that the sharp decline in global demand is having a very significant effect on German industry. Total goods imports declined 16.4% over the same period,. February's collapse in exports is almost identical to the January's one, when exports dropped 23.2% on a year-to-year basis, the sharpest decline since records began in 1950. Total goods exports, adjusted for workday and seasonal factors, fell 0.7% from January, while imports decreased 4.2% over the same period.

The weakness in demand for German goods was general and widespread. Exports to other European Union countries fell 24.4% year-to-year, while imports from those countries dropped 14.8%. German exports to other euro-zone nations declined 22.5% from a year earlier, while imports from the region were down 13.1%. Exports to countries outside the EU, fell 20.6% from a year earlier, while imports from those countries declined 19.2%.

Germany's trade surplus widened to €8.7 billion ($9.29 billion) in February from a revised €7 billion in January, as imports dropped more than exports. The country's current account surplus more than doubled to €5.6 billion from a revised €2.3 billion in January.

And the pain is far from over. German plant and machinery orders from abroad plunged 50 percent in February from a year earlier, the biggest drop since data were first compiled in 1958, according to the VDMA machine makers association. The country’s manufacturing industry shrank for a seventh month in March, according to the purchasing managers index, and business confidence - as measured by the Ifo index - dropped to a 26-year low.

And domestic demand is unlikely to counter the decline in exports, even as slower inflation boosts households’ purchasing power. Retail sales declined in February and consumer sentiment fell for the first time in seven months in March.

Looking ahead, German orders came outwell short of general expectations in February, falling by 3.5% month on month after an upwardly revised -6.7% (from minus 8%) in January. On a year on year basis, figures continued to worsen from -36.8% to - 38.2%. Domestic orders fell much more than foreign orders in February (-5.7% m/m against -1.3% m/m) but it is actually impossible to draw any conclusion from such extremely volatile monthly data. Foreign orders declined by 10.9% m/m in January and are still weaker than domestic orders on a yoy basis: -42.2% against -33.1%. Capital goods orders only posted a limited 0.5% decline in February but here again these figures are misleading. Non-Euro zone exports stabilized but after a 25% monthly collapse in January. Foreign capital good orders have been halved over the last 12 months (-48%), which has had terrible consequences for the German industry, as more than half the increases in German exports were due to these orders before the downturn.

Intermediate good orders and consumer good orders were also sharply down in February (respectively -6.5% m/m and -8.7% m/m) pointing to both still excess in inventories and weak consumer spending despite the success of car purchase incentives. Domestic consumer goods fell by 9.2% m/m, after -9.3% m/m, thus pointing to a significant acceleration in the downturn, as they are only down by 24.2% on a y/y basis. This seems to confirm what the fall in imports suggested this morning, ie substitution between durable goods consumer spending and all in all, no improvement in domestic demand triggered by the budgetary support. The fall in export orders also leads suggests it is advisable to be cautious as far as the comparative stabilization in month on month exports seen in February.