Fair or Free?

July 06, 2022

Two-line chart showing Germany's trade balance and trade as a % of GDP. Chart subtitle: Germany’s long-standing trade surplus collapsed to a trade deficit in May amid rising input costs and trade disruptions. Chart visual description: Left Y-axis repesents Trade Balance and spans from -5B € to +25B €. X-axis shows years from 1990 to 2021; data is included through June 30, 2022 though axis is not labeled. Right Y-axis represents % of GDP and spans -1% to +9%. Trade Balance line is teal with monthly data, and % of GDP line is slate and annual data. Chart data description: Germany's trade balance has been positive for over thirty years, representing a surplus; but in May 2022 it turned negative, representing a deficit. Chart source: Bundesministerium der Finanzen (Germany) as of June 30, 2022. End chart description.

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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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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