Germany Must Crack Export Dependence: Pimco
Germany must break its reliance on exporting to the rest of Europe if it is to thrive despite the world economic slowdown, Pimco Managing Director Andrew Bosomworth told CNBC.com.
Bosomworth, who heads Pimco’s portfolio management division in Germany, said the country exports disproportionally to peripheral Europe (learn more), and this is decreasing its resilience to the region’s woes.
“In the short term there is no way Germany can live on an island by itself and avoid the slowdown — and there is a synchronized global slowdown going on,” Bosomworth said.
“However longer term and structurally, Germany will have to change its economic business model, which is highly export-orientated with 40 percent of exports still going to the European periphery.”
Bosomworth said Germany should combat this by both boosting demand for its exports outside of Europe, and by diversifying away from exports entirely, by boosting domestic demand.
“The easiest option is to seek other export markets. It’s harder for a country to stimulate domestic demand, particularly for Germany, which has a history of always generating growth through exporting,” Bosomworth said. He warned however that trying to tap other export markets would weaken growth in Germany in the short-term.
(Read More: Chinese Investors Snap Up German Industrial Exports)
A waft of soft data in August and September alarmed investors who fear Germany’s economic solidity is waning.
In August, Germany’s leading trade body, the Chambers of Industry and Commerce (DIHK), forecast a four percent drop-off in exports in 2012, while industrial firms surveyed by Markit reported the highest fall in export orders for more than three years.
More recently, Gross Domestic Product(learn more) data published by the OECD (Organisation for Economic Co-operation and Development) forecast the German economy will shrink at an annualized rate of 0.5 percent in third quarter 2012 and 0.8 percent in the fourth quarter.
However Societe Generale Chief European Economist James Nixon disputed the need for Germany to implement measures to stimulate domestic demand.
“The data is showing things have maybe cooled a little, but not enough to push Germany back into recession (learn more),” Nixon said.
“Domestic demand should hold, although a little bit of the slowdown in exports will be transported… But in context we are talking of the most modest of slowdowns compared with say, Italy.”
German industrial output data released on Friday surprised on the upside, with production rising 1.3 percent on the month in July.
(Read More: Why a German Recession Could Hurt the Euro)
— By CNBC.com's Katy Barnato