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Falling Import Prices Boost Germany’s Surplus

Summary:
Falling prices for imported goods and services have fuelled a sharp increase in Germany’s current account surplus. At the same time, prices for export goods remained unchanged, according to the latest calculations by the ifo Institute. “This price effect boosted the surplus by 2.1 percentage points of annual economic output between 2013 and 2016,” notes Timo Wollmershaeuser, Head of Economic Forecasting at ifo. It was mainly due to the fall in oil and gas prices, which accounted for 1.4 percentage points of the surplus increase. Germany’s surplus hit an all-time high of 9.3 percent of economic output in summer 2015, but has since fallen to around 8 percent. “If oil and gas prices were to rise again due to an uptick in the world

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Falling prices for imported goods and services have fuelled a sharp increase in Germany’s current account surplus. At the same time, prices for export goods remained unchanged, according to the latest calculations by the ifo Institute.

“This price effect boosted the surplus by 2.1 percentage points of annual economic output between 2013 and 2016,” notes Timo Wollmershaeuser, Head of Economic Forecasting at ifo. It was mainly due to the fall in oil and gas prices, which accounted for 1.4 percentage points of the surplus increase. Germany’s surplus hit an all-time high of 9.3 percent of economic output in summer 2015, but has since fallen to around 8 percent. “If oil and gas prices were to rise again due to an uptick in the world economy, this price effect would reverse, bringing the current account surplus back down to around the 6 percent figure deemed high but acceptable by the EU Commission,” explains Wollmershaeuser.

“Behaviour on the part of private households and companies also suggests that the phase of low energy prices is only seen as temporary,” adds Wollmershaeuser. A significant share of gains in purchasing power was not spent. The savings ratio of private households rose from 9.0 percent in 2013 to 9.7 percent of disposable income in 2016 as a result. At the same time, the financial surplus of non-financial corporations also rose by 0.7 percentage points of economic output.

“Of course, this calculation of price effects is purely mechanical and does not take into consideration the impact of lower prices for oil and gas on the level of demand for them; or on the disposable income of households and companies,” notes Wollmershaeuser. “It seems evident that both the volume of energy imports, as well as aggregate demand and economic output were stimulated. Both are likely to have mitigated the current account surplus increase, meaning that the net effect may well be slightly smaller than the 1.4 percentage points in these calculations,” he concludes.

Publication (in German)

  1. Grimme, Christian and Timo Wollmershäuser, "Zu den Auswirkungen von Rohstoffpreisänderungen auf den Leistungsbilanzsaldo", ifo Schnelldienst 70 (14), 2017, 44-46 | Details | PDF Download

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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