Germany, China, struggle as exports slump

Exports Jun09.jpg

Germany and China have benefited massively from the growth in world trade since 1980. As the Wall Street Journal chart shows, 47% of Germany’s GDP comes from exports. And China has a 37% dependence. US exports are just 13% of GDP, so it is more self-sufficient.

Both countries have punched above their weight in terms of chemical demand as a result. Germany has been a major auto exporter, a key use for all types of chemicals. Whilst China, as the manufacturing capital of the world, has become a major chemical importer and producer.

But now, with world trade likely “to record its largest decline in 80 years” according to the World Bank, the economies of both countries are struggling. However, their policy responses have been quite different:

• The German government, faced with a 17% drop in exports, has decided to sit out the storm. It is subsidising payrolls, as companies move to short-time working, and supported auto sales, but has refused to introduce more general stimulus programmes to boost the economy.
• China has instead pumped enormous sums of money into its economy, to support GDP. But with exports down 26%, much of this stimulus has gone into building inventories and to finance stock market speculation.

Now China’s Banking Regulatory Commission has called for this “explosive lending” to stop, and called on banks to “make sure that loans flow into the real economy”.

Unrestrained lending got the world into the current crisis, when Western banks lent recklessly to borrowers who could never repay. Now China is at risk of repeating the same mistake. It creates a real danger, as the Commission states, of a sudden slowdown when bank lending is cut back.

If firms then liquidate their inventory, this could have a major deflationary impact on chemical demand worldwide, particularly if it happens to coincide with a slide in crude oil prices from today’s peaks.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to Germany, China, struggle as exports slump

  1. Robbo 29 June, 2009 at 3:07 pm #

    Paul, is it really two years, my my. Anyway, isn’t the danger greater that the oil price will collapse once speculators face the underlying weakness of the global economy and then the Chinese will rein in their stimulus package? The last thing we need is big inventory losses in 2009 to match those in 2008 followed by more dislocations in the Far East.

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