Global economic slowdown most likely to weigh on German exports

Despite a soft patch in global demand, which significantly hurt world demand for Germany (flat on average in H1), exports resisted quite well, even accelerating to 2.2% QoQ in Q2, owing to a large increase in market shares in the wake of the depreciation of the euro.

Final Q2 GDP details after revisions to previous quarter data eventually showed that growth remained in line with the recent trend during the first half of 2015.

Exports were particularly dynamic to the US (+13.4% QoQ in Q2), which is about to become the largest export market for Germany, exceeding France for the first time in 2015.

The largest relative decline in exports in relative terms during the H1 of the year was recorded for shipments to Russia, which declined very rapidly until May as the Russian economy was facing a severe recession, although they seem to have bottomed since June.

We expect some stabilization as the Russian recession moderates. On the other hand China has been the cause of concern, the main negative contribution now comes from China, where German exports peaked at the end of 2014 and have been on a downward trend since (-8% SAAR).

We expect exports to slow in H2 15 and 2016 as gains in market shares should be partly reversed owing to labour costs increasing more than in other euro area countries. The recent weakening of factory orders, especially from non euro area countries and the sharp drop in exports in August supports this view.

Moreover, the VW scandal could have some negative temporary impact on the German car industry, although we think it should remain limited, consequently, will decline further to 0.2 pp, in our view.