US urges Germany to spur consumption amid booming trade surplus (Jan 2014)

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Source: CNA – US urges Germany to spur consumption amid booming trade surplus

Notable excerpts:

US Treasury Secretary Jacob Lew called Wednesday on export powerhouse Germany to spur consumption and investment at home to help revive European growth as Berlin reported a rise in its trade surplus.

“We think policies that promote more domestic investment and demand would be good for the German economy, the global economy,” Lew told reporters after talks with Finance Minister Wolfgang Schaeuble.

Long the envy of its EU partners for its strong public finances and powerful economy, Germany has however been under growing pressure to boost domestic demand and so help its peers by spurring export-driven growth in their economies, rather than continue to rely mostly on its own exports for growth.

Analysts were upbeat about the health of the German economy after figures earlier Wednesday showed industrial orders, a key measure of demand for German-made goods at home and abroad, rose sharply in November.

Kicking off his brief visit by expressing US President Barack Obama’s wishes for Chancellor Angela Merkel’s speedy recovery after she fractured her pelvis cross-country skiing, Lew reiterated Washington’s recent calls.

“We’ve made very clear that we think that more domestic demand and investment would be a good thing,” he said, on the middle stop of a three-nation European tour which took in Paris Tuesday and continued on to Lisbon later Wednesday.

He said it was important to attain a balance between “promoting domestic demand, investment, getting short-term growth to where it needs to be to generate longer term economic strength”.

And he pointed to policies by Merkel’s new “grand coalition” with the Social Democrats for investment in infrastructure and the introduction of a national minimum wage as being “consistent with that approach”.

“Our common goal is growth and reform,” he added.

The meeting came just hours after new trade data showed that German exports are still growing while imports are shrinking, and several months after clear differences were exposed between Berlin and the United States over economic policy.

German growth driven by domestic demand

Ties between Berlin and Washington became frayed last year over US spying on Europeans, including the revelation that Chancellor Angela Merkel’s mobile phone was tapped.

The US Treasury then criticised Europe’s biggest economy in its semi-annual report in October for not doing enough to help boost the global economy, saying it needed to tap its surpluses to kickstart domestic demand.

Similar concern has been expressed by the EU Commission which has put the German surplus under scrutiny.

Berlin, in turn, tersely rebutted as “not comprehensible” the US report, which criticised the country’s dependence on exports and “anaemic pace” of domestic demand growth at a time when the eurozone needed help to pull back from deflation.

Germany also argues that the surplus reflects the competitiveness of its companies.

Schaeuble, for his part, defended Germany’s policy Wednesday, stressing that German growth was driven by domestic demand and that the eurozone as a whole had a very small surplus with the rest of the world.

Within the eurozone we don’t have a German surplus but are just contributing overall to a balanced situation,” he told the joint press conference.

“In addition, German growth is carried by domestic demand,” he said.

Data published by the federal statistics office Wednesday showed that the trade surplus expanded in November.

In seasonally adjusted terms, Germany exported goods worth 93.2 billion euros (US$127 billion) in November, up from 92.9 billion euros in October, Destatis calculated.

Imports, on the other hand, declined by 1.1 per cent to 75.4 billion euros from 76.2 billion euros.

In regional terms, exports to the 18-member euro area inched up by 0.1 per cent on a 12-months basis in November, while imports from that region contracted by 1.0 per cent.

Chris Williamson, an analyst at Markit in London, said the data would likely put Germany under further pressure.

“The widening surplus is likely to put increasing political pressure on Germany to rebalance its economy away from export-oriented growth towards domestic consumption,” he said.

The rise in the surplus was the biggest since comparable data were available in 1990, he noted.

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