Germany’s trade surplus has been an issue for a significant length of time. In 2016, The country’s trade surplus was about 250 billion USD, or almost 7% of the country’s GDP. This continually rising trend has been present since 2000, and it has now come to the 6th consecutive year that Germany’s surplus has been above 6% of GDP (Evans-Pritchard, 2016). The rapid increase in the country’s trade deficit through out the past decade is predominantly due to the expansion of German competitiveness following the Hartz labour reforms, and the unsustainable booms in peripheral Eurozone economies (Davies, 2016). As well as this, other reasons for the significant trade surplus include Germany’s tight Fiscal policies and the euro being too weak at times to be consistent with German balanced trade (Bernanke, 2015). Germany introduced the euro currency in 1999 first in a non-physical form and later in 2002 as a physical form of payment with notes and coins. Currently, there are 19 EU-member states using the euro as their currency and are thus member of the Eurozone. This means, Germany has no monetary independence and relies on the action taken by the European Central Bank. This makes it different from other countries like the U.S. or United Kingdom because these countries have their own currency and therefore an independent monetary policy.
The following report will be an analysis of Germanys balance-of-payments (BOP) accounts over the past five to eight years. The report will begin with a discussion of the influences and variables which account for fluctuations in the different balances over time, as well as a discussion of the relationship between the shifts in the current-account balance and financial account balance. Following this will be an analysis of the country’s exchange rate against the US dollar for the given period, and a determination of the relationship which exists between the BOP accounts and the exchange rate. Finally, the measures which are suggested for the German government to undertake to aid in improving its balances in 2017-2018 will be presented.
This analysis was part of a coursework during my studies at Queen Mary University.