Surplus will shrink with
age, Germany says, but don't blame us for being
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[March 23, 2017]
By Joseph Nasr
(Reuters) - Germany has launched a two-pronged attack on U.S. President
Donald Trump's charge that its current account surplus is too high --
don't blame us for being good at what we do, and our aging population is
going to eat it all up anyway.
The finance ministry said in its monthly report on Thursday that as
Germany's society ages fast, its swelling senior population will be more
inclined to spend at home rather than save abroad, boosting consumption
and shrinking the surplus.
"In a society where aging is growing, savings -- including capital
invested abroad –- will fall as pensioners use that to finance their
consumption in Germany," it said. "This will probably reduce the current
account surplus and could even turn it into a deficit."
At the same time, it said that the surplus -- which irks the
International Monetary Fund and many in Europe as well -- was the
result, frankly, of Germany being better than others at business.
It said it was down to the competitiveness of the German economy over
which the government had no influence. "The current account in Germany
is not controlled by the state," the ministry said.
The new U.S. administration has accused Germany of exploiting a weak
euro <EUR=> to gain a trade advantage and has called for bilateral
discussions to reduce the $65 billion U.S. trade deficit with Germany.
Many Europeans, meanwhile, reckon Germany's surplus epitomizes the
imbalances of the euro zone, in which productive Germany drives ahead of
less competitive, primarily southern countries in the bloc.
Graphed over the past 20 years, the U.S.-German gap indeed looks like
the open jaw of an alligator. http://bit.ly/2mXdIUv
But Germany's main new pitch is that the jaw will snap shut when
demographics kick in.
OLD AND WEALTHY
Economists say there is some truth -- at least in theory -- to Germany's
claim that demographics will put negative pressure on the current
Some 21 percent of Germany's 82-million population is aged 65 or more, a
figure projected to rise to 27 percent by 2030.
But more active measures like boosting government and corporate spending
would give more credibility to German efforts to counter the criticism
of its disproportionately strong exports sector.
"All in all, it is a valid argument but falls short explaining the
entire story. More investments, both by the private and public sector
would make the story much more convincing," said ING-Diba economist
[to top of second column]
Germany's Chancellor Angela Merkel and U.S. President Donald Trump
hold a joint news conference in the East Room of the White House in
Washington, U.S., March 17, 2017. REUTERS/Jonathan Ernst/File Photo
added: "Not only for the U.S. administration but also for the German economy,
which would be the main beneficiary from such a policy change."
Brzeski said that Japan, whose population is older than Germany's, still has a
high current account surplus. This doesn't bode well for German arguments that
demographics will depress the surplus.
The finance ministry said that in addition to demographics, increased private
consumption and an eventual normalization of the European Central Bank's
expansionary monetary policy were also likely to narrow the surplus.
economists say the government could spend more on education and digital
infrastructure, which would in turn prod German companies sitting on billions of
euros in savings to invest in factory modernizations and new machineries.
"Raising public spending is one measure to encourage companies to raise
investments. We are on the right path but more needs to be done to get companies
to invest," said Simon Junker of the German Institute for Economic Research (DIW).
The finance ministry said the current account, which stood at 8.3 percent of
output in 2016, would fall to 8 percent by 2018. It stood at 8.6 percent of
gross domestic product in 2015.
In 2016, the German trade surplus hit a fresh record at 252.2 billion euros
($272 billion), according to the Federal Statistics Office.
The wider current account surplus, which measures the flow of goods, services
and investments into and out of a country, rose to an all-time high of 261.4
billion euros, Bundesbank data showed.
(Additional reporting by Michael Nienaber and Daniel Felleiter; Editing and
graphic by Jeremy Gaunt)
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