(MENAFNING) The German export-based model has served it well, but the focus is still on traditional sectors. However, competition is intensifying, especially from China. Germany’s adaptation will be crucial for its economic future

In this article

• It’s all about exporting
• Traditional sectors remain in the lead
• Surprisingly growing global markets
• Does the size of the company matter for exports?
• How attractive is Germany still to foreign investors?
• Making Germany’s basic economic skills fit for the future

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Germany’s export-based business model has been the subject of international criticism for years. It’s still focused on big trade and current account surpluses, which haven’t really changed over the past decade. Compared to the peak in 1990, Germany’s share in world exports fell by four percentage points. Exports of goods have tripled since 1990, as have imports.

About one in four jobs in Germany depends on exports. Measured as a percentage of GDP, exports of goods and services reached a record high of 47.3% in 2018, falling slightly to 44% in 2020. At the start of the millennium, this share was only 30.8%, increasing almost continuously until last year, while in other countries there was a stabilization or even a reversal of the trend.

Germany’s share of world exports compared to the United States, China and Japan

WTO, ING Economic and financial analysis
Traditional sectors remain in the lead

Germany’s success story is based on traditional sectors. Germany ranks first in world exports of automotive products, chemicals and pharmaceuticals. The automotive sector, in particular, faces deep challenges given ambitious climate targets. As the automotive sector is by far the most important industrial branch in Germany in terms of sales, it is not surprising that a transition which guarantees its contribution to growth and employment is necessary.

However, the pandemic has shown that traditional sectors should not be written off, as they can quickly become new markets of the future, as is the case for the pharmaceutical sector. It is estimated that Mainz-based biotech company BioNTech alone could increase the German economy by 0.5% in 2021.

Share of Germany in world exports and other main exporting countries by sector

Germany’s world ranking in brackets

WTO, ING Research
Surprisingly growing global markets

Although the German economy is characterized by traditional sectors, surprising growth markets have opened up in recent years in the United States and China. While some of these markets are very small in terms of value, the average growth performance over the past five years is nonetheless impressive. The demand for forest products and wood and cork basketry has increased significantly. Pharmaceuticals (+ 17.8% in China, + 8.1% in the United States) are also in demand. Traditional products such as motor vehicles and parts saw only weak growth in China (+ 3%) and a decline in the United States (-3.8%) over an average period of five years.

Exports to China

By product (percentage change 2015-2020)

Destatis, ING Research
Exports to the United States

By product (percentage change 2015-2020)

Destatis, ING Research
Does the size of the company matter for exports?

Although only a few German companies are among the largest in the world, the country still ranks third in terms of global exports. Companies that operate in product niches, the Mittelstand and its hidden champions, are largely unknown to the public and have a turnover of less than five billion euros, but they have been a major factor in the success of the export from Germany for decades. According to estimates, more than 1,500 companies in Germany rank among the hidden champions, half of all those estimated in the world. A list of hidden champions from 2019 to 2016 shows that most companies are active in the manufacturing industry with a particular focus on machinery, followed by electronics and optics.

Yet competition is coming. China’s 10-year plan to transform China into a manufacturing leader and high-tech powerhouse by 2025 is going full steam ahead. China is targeting 10 strategic industries, which will be detrimental to Germany’s future. In addition to the “Made in China 2025” strategy, there is a new guideline of developing 10,000 “little giants” for niche sectors and 1,000 companies that are market leaders in a single industry – reflecting, d ‘in a way, the German model.

At the same time, German companies are more dependent on foreign contributions. While in Germany, the ratio of foreign value added to the volume of exports from the manufacturing sector remained relatively stable between 2005 and 2016 (latest data available in the OECD TiVA database) at around 25%, the ratio China’s increased from nearly 30% in 2005. to 17%, driven by China’s plans to achieve self-sufficiency.

Number of Fortune 500 companies and exports

Billions of American dollars

Destatis, Fortune
Calculated based on Hermann Simon, CESifo Forum 3/2015, ZEW, Discussion Paper, The Distinct Features of Hidden Champions in Germany: A Dynamic Capabilities View, March 2019
How attractive is Germany still to foreign investors?

Even though large, well-known companies are building new establishments in Germany, the flows and stocks of FDI around the world have declined over the years. While in 2018 Germany received a large inflow of inward FDI, in 2019 inward inflows decreased by more than 50%, measured as a percentage of total global FDI inflows. When looking at the level of inventories, both inflows and outflows have declined significantly over the years. In China, on the other hand, an almost continuous trend can be observed for the level of stocks and flows, while in the United States, FDI flows remain significant overall.

Foreign direct investment in Germany, China and the United States

Percentage of world total

UNCTAD, ING Research
Making Germany’s basic economic skills fit for the future

Germany’s success is based on its export strength combined with exceptional competence, among others in the automotive industry, healthcare and mechanical engineering. This export-based business model is not going to change anytime soon, and it doesn’t necessarily have to be. As German companies play a lesser role in the new economy, one of the main tasks of the new government must be to prepare Germany’s basic economic skills for the future. The pandemic has shown that traditional sectors can become new markets of the future.

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