The German trade balance for the net balance of goods has gone negative. This is a shocking reversal for the country, which has a sterling reputation as an exporter of goods. Germany was a net importer in May, with monthly figures at -10bn euros (annualized) – its first trade deficit since 1991. Adding Services (not shown), the trade balance fell to a 20-year low – only just remaining positive, at 6bn euros.

 

The monthly growth in imports was 2.7%, growing due to significant mark-ups in price, especially in the energy and agriculture sectors. Recent price increases result from supply constraints exacerbated by the Russian invasion of Ukraine and the ongoing Chinese lockdowns.

 

Germany’s exporting industrial base is the backbone of its economy; thus, a trade deficit is unwelcome news. Crucial sectors such as the automotive industry, which exports 64% of its production, are under fire from multiple angles. Already suffering from the global semiconductor shortage, energy issues could bring car production to a grinding halt.

 

The future supply of natural gas, the most significant energy input for automotive production and a crucial input for all of German industry, is uncertain. Germany imports nearly all of its natural gas from Russia, Holland and Norway. Russia, the largest supplier, is threatening an embargo on natural gas supply to Germany in response to Western sanctions after the invasion of Ukraine. Were they to follow through with their threats, Nord Stream, the gas pipeline from Russia to Germany, would cease operation. This would be catastrophic for German industry, which has grown highly reliant on Russian supply and would cause difficulty in heating homes for the coming winter.

 

Short-term gas supply is further constrained by farmer strikes in the Netherlands, which have immobilised infrastructure nationwide, and more recently, Norwegian gas drill workers have begun striking.

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