The Irrelevant German Consumer

MUNICH – With global rebalancing set to be high on the agenda at the next G-7 and G-20 meetings, Germany, with its persistent export surplus, will again come under pressure to boost domestic demand and household consumption. But the German consumer is a sideshow. What is needed is an investment surge in Germany and Europe, and a coordinated exit from ultra-loose monetary policies.

Massive external-account imbalances were a major factor behind the global financial and economic crisis that erupted in 2008, as well as in the eurozone instability that followed. Now the world economy is in the process of rebalancing – but not in a way that many people had expected.

Asia’s formerly huge external surpluses have declined astonishingly fast, and Japan’s trade balance has even slipped into deficit. China’s current-account surplus has fallen to 2% of GDP, from 10% in 2007. Investment is still the Chinese economy’s main driver, but it has led to soaring debt and a bloated shadow banking sector, which the authorities are trying to rein in.

The European Union, however, has built up a large external surplus, owing mainly to positive trade balances in the eurozone. The EU’s current-account surplus in 2014, at around $250 billion, will be even higher than that of emerging Asia. With oil prices still above $100 a barrel, the combined surplus of oil-exporting countries is of a similar magnitude. The United States, meanwhile, continues to run a sizeable current-account deficit of around $350-400 billion.