German Economy Boosted by Exports Shows Risks of China Slowdown

Germany’s economic growth was led by exports last quarter, highlighting the risks to Europe’s powerhouse as a slowdown in China threatens to curb global trade.

A breakdown of German gross domestic product showed overseas sales climbed 2.2 percent in the three months through June, according to data on Tuesday from the Federal Statistics Office in Wiesbaden. Private consumption rose 0.2 percent, while capital investment shrank 0.4 percent. The economy expanded 0.4 percent, matching an Aug. 14 estimate.

Germany faces the risk that exports will slow as China, the world’s second-biggest economy and Germany’s third-biggest trading partner, cools further. More than $5 trillion has been wiped off world equity markets since China unexpectedly devalued the yuan on Aug. 11, fueling concern that its slowdown is worse than anticipated, and German stocks have entered a bear market.

“If China experiences a long-term slowdown, German exporters will feel this,” says Andreas Scheuerle, an economist at Dekabank in Frankfurt. “This doesn’t mean that it will necessarily lead to a collapse of exports, but we will need to say goodbye to high growth rates.”

The Ifo institute is scheduled to release a gauge of Germany’s business climate at 10 a.m. in Munich. The index will probably fall to 107.6 from 108, according to a Bloomberg survey of economists, highlighting the perceived risks to the nation’s upswing.

China Trade

Net trade added 0.7 percentage point to GDP last quarter and private consumption added 0.1 percentage point, the statistics bureau’s report showed. Capital investment subtracted 0.1 percentage point, and inventories subtracted 0.4 percentage point.

Germany’s budget surplus was 21.1 billion euros ($24.4 billion) in the first half of the year, or 1.4 percent of GDP, separate data from the statistics bureau showed.

Chinese demand has been key for German companies in recent years, and the nation’s trade deficit with China fell to the lowest this century in 2014 at 4.8 billion euros ($5.6 billion). The gap has widened in 2015 to 7.3 billion euros in the first half.

Germany’s DAX Index of stocks has dropped 22 percent since reaching a record in April, wiping out its gains for the year. Automakers Daimler AG and BMW AG have tumbled more than 15 percent in August.

Even so, German manufacturing growth accelerated to the fastest pace in more than a year this month, Markit Economics said on Friday. Consumer spending remains supported by record-low unemployment and borrowing costs, and the Bundesbank said this month that domestic demand will feature more strongly in the second half of the year.

The euro-area economy, which expanded 0.3 percent in the second quarter, may also offer support. A renewed decline in oil prices and massive monetary stimulus from the European Central Bank is helping the region recover from its longest-ever recession.

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