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• Author: Helge Berger and Martin Schindler
• Position: a Deputy Division Chief and is a Senior Economist in the IMF's European Department.

GERMANY’S ability to produce goods that the rest of the world wants to buy has been a constant theme in Europe’s post–World War II economic history. Its impressive export performance is a sign of economic muscle and enduring competitiveness. But even though German exporters have historically maintained an edge in many high-value markets, the precrisis export surge, and consequent very high current account surpluses, is fairly new and most likely a temporary phenomenon.

Germany’s export performance has led to a rapid industry-led recovery following the global economic crisis. But its dependence on exports has come at a cost: the ups and downs in global demand for German products sent the economy on a roller-coaster ride during the financial crisis, when strong precrisis expansion was followed by an unheard-of output drop of over 4½ percent in 2009, before resurgent world trade brought growth back into positive territory. Because of its current account surpluses, Germany has also featured prominently in discussions of such surpluses’ role in balanced global growth. Observers in both Europe and the United States have urged the German government to boost domestic demand as a means to spur global recovery.

A closer look at Germany’s net-export performance can help inform this—at times heated—debate. Temporary cyclical factors influence foreign and domestic demand but in themselves are little reason for concern. Likewise, surpluses resulting from structural developments such as an aging population are not only natural but a welcome development as the economy moves toward a new demographic equilibrium. Other structural factors could be less benign, however. For instance, persistent rigidity in service and labor markets might limit growth from domestic sources and, by deepening dependence on trade, lead to unwanted volatility. It is in these areas that economic policy could play an important role in adjusting Germany’s current account dynamics.

Roller-coaster ride

The most remarkable characteristic of Germany’s trade and current account balances since the 1970s is not their size, but their ups and downs (see chart). Driven by cyclical factors and structural shocks, current account balances have fluctuated substantially over the past four decades, and small—even negative—balances are, historically speaking, more typical for Germany than the recent record highs.

Two current account balance surges from past decades stand out: one during the run-up to...