Fair or Free?

July 06, 2022

While developed economies across the globe are struggling with historical levels of inflation, the European Union and its 27 constituent nations are facing extraordinary economic challenges related to energy costs and security amid the ongoing Russia–Ukraine conflict. Against this backdrop, Germany posted its first monthly trade deficit in more than 30 years. Following the adoption of the euro in 2002, Germany built its economy around the cheap common currency, using its relative cost advantage to grow via exports. The country’s trade surplus expanded over the next several years, hitting a peak of more than 7% of GDP in 2017. Today, in the face of higher prices for vital imports like food and energy, and with supply chain disruptions impacting trade, that trade surplus has collapsed to a deficit. The Russia–Ukraine war has changed longstanding dynamics in the region and will likely have far-reaching implications, with one in four jobs in Germany reliant on the export market. With central banks around the world focused on controlling inflation, the risk of recession has continued to rise, with the outlook in Germany and broader Europe even more challenged following this latest data point.

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