February 05, 2018
How big is Germany's external surplus, really?
The size of the German external surpluses (trade and current account) are not just a matter of economic interest, but have become intensely political. For years foreign commentators, and institutions such as the European Commission, the IMF, or most recently the US Treasury department, have accused Germany of running a beggar-thy-neighbour policy or at least of not doing enough to rein in an ever-growing macroeconomic imbalance. Heiner Flassbeck is one of the few prominent German economists who breaks with the domestic consensus that the external surpluses are a sign of the health of the German economy. With Friederike Spieker, Flassbeck recently published a blog post in which they suggest Germany's very large external surpluses are in fact being understated by the German statistical office. If true, this would make the political controversy over the German external surpluses all the more intense.
But not only that. The German statistical office's interpretation of German GDP growth data is that in 2017 growth has been dominated by domestic demand and investment. Flassbeck and Spiecker argue that, if the external surplus is larger than reported as they suspect, then actually the contribution of domestic demand and investment to German growth has been negative. For left-wing economists such as them, this only makes it more urgent to rebalance the German economy so that German workers enjoy more of the fruits of their work - which they don't if they are exported.
Flassbeck and Spiecker base their suspicion on discrepancies between the estimates of the trade surplus by the German statistical office and the Bundesbank. The Bundesbank estimates that the foreign surplus was over €20bn larger, per quarter, in 2017 than in 2016. This is a massive discrepancy when the statistical office claims that the annual net exports, in nominal terms, had actually fallen to under €250bn. The two institutions use different statistical techniques to convert foreign trade prices to domestic currency, which has a noticeable impact in the estimate of the real balance of foreign trade. Flassbeck and Spiecker also lament that the German statistical office is not more forthcoming about the fact that the first estimates of the 2017 foreign surplus have a substantial component of economic forecasting, and are not just the result of statistical compilation. Also, they wish the statistical office were more encouraging of scientific debate about the methodological issues involved in price adjustment of foreign trade.