Just as the ECB has started tightening monetary policy, and just as the sovereign debt crisis appears to be coming to a head (don’t rule out a Greek restructuring over this long weekend although it remains an outside chance), it feels like we might have seen the best of German growth for this cycle.
The chart below (from UniCredit via Bloomberg) shows that cargo volumes at Frankfurt Airport have fallen substantially from their peak, and are now down year on year. This series has been a good lead indicator for export growth (which was running at a stunning 18.5% in 2010), which itself was a big driver for Germany’s above trend GDP growth rate of 3.6% last year.
Fraport, the airport operator, has said that the disruption to the global supply chain following the Japan earthquake was to blame for the volume falls – but the drop also coincides with a period of a considerable strengthening of the Euro. On a trade weighted basis the currency is up over 7% from its low in January.
I’ve seen research recently that’s claimed that Germany, with a “high margin big ticket” exporting focus is less impacted by a strengthening currency than, say, Portugal which exports lower value added, low margin goods (e.g. leather bags) – if that is the case the periphery must be really suffering with the Euro strength.
This morning we had a second monthly fall in German business confidence (the IFO index), although the outright level is still relatively strong. Nevertheless, whilst the ECB rhetoric is about inflation fighting and tighter monetary policy, the Euro can stay strong – and that’s going to hurt Germany.