German and the Eurozone’s basic balances to deteriorate further – Deutsche Bank

Research Team at Deutsche Bank, suggests that the likely fall of the German current account surplus from the record high of almost 9% to 7% of GDP in 2020 will reduce global imbalances.

Key Quotes

“Germany has had the world’s largest current account surplus in the world over the past three years. The surplus will decline not only due to domestic factors such as an ageing population, the housing boom, and record immigration. It will also weaken as a result of a structural slowdown in the growth of global trade.

A weaker German balance will also tend to weaken the Eurozone’s aggregate current account surplus. Some of the deterioration will benefit the balances of Germany’s European neighbours and thus offset the impact on the aggregate current account balance. But the main decline will be vis-a-vis the traditional importers in Asia, the Middle East, and elsewhere.

Moreover, although a smaller surplus would also suggest less recycling on the financial account, we see the rotation of capital stocks out of the Eurozone as relatively independent from the current account. Overall, therefore, we expect the German and thus the Eurozone’s basic balances to deteriorate further and to increase the downward pressure on the euro.”