German industrial output jumped in February, 2.2% month on month from January, a quite remarkable number. This was accompanied by a not unexpected, given that number, rise in the country’s trade surplus. While this is great for the economy of Germany it’s not so good for other members of the eurozone. The ECB is valiantly trying to keep the value of the euro down as that’s what many of those other economies need. But Germany’s trade surplus is obviously pushing it up again–even as that surplus is partly fed by the low euro. It’s just another proof that the eurozone isn’t an optimal currency area:
German industrial output surged in February and the trade balance swelled as the engine room of Europe’s largest economy fired on all cylinders to satisfy demand at home and abroad, assuaging angst about rising protectionism.
More specifically the numbers were:
Industrial output rose by 2.2 percent on the month, matching January’s expansion in what the Economy Ministry said had been an “extraordinarily” robust start to the year. A Reuters poll had pointed to a dip of 0.1 percent in February.
“German industry finally returns as a growth engine,” said ING economist Carsten Brzeski, pointing to a 13.6 percent surge in construction in February after a weak end to last year.
Seasonally adjusted exports rose by 0.8 percent on the month, while imports fell by 1.6 percent, data from the Federal Statistics Office showed on Friday.
A country having a large and rising trade surplus should in fact have a rising FX rate. If we still had the DMark that would be rising. That would encourage Germans to purchase more of those now, to them, cheaper imports and both erode the trade surplus and also spread some of that demand out to other economies. That we don’t have a DMark and thus this isn’t happening is to the detriment of those other eurozone economies.
Separate official trade figures also out today showed another swelling in the country’s overall trade balance which is €19.9bn in surplus on the back of climbing exports in the continent’s powerhouse economy.
The trade balance grew from €14.9bn and another beat (forecast: €17.7bn).
It’s not possible for us to have the one appropriate exchange rate, nor interest rate, for an economy booming like this, with a strong trade surplus, and also have that FX rate or interest rate be appropriate for a place like Greece with 25% unemployment, 50% youth unemployment. Or Italy, where the GDP per capita is below what it was 20 years ago.
While these numbers all look, superficially, lovely for Germany what they really prove is that we just shouldn’t have the euro at all.