Is Germany’s current account surplus a major problem?

A new survey of leading economists across Europe has found strong support for the argument that the large, persistent and growing current account surplus in Germany is a significant problem for the European Union economy and wider afield.

The scale of the German external surplus

• Germany posted a record-high current account surplus of 8.5% of GDP in 2015; indeed, the German surplus has overtaken China’s surplus as the largest in the world.
• German exports increased from 30% of GDP in 2000 to 47% in 2015.
• German savings are now well above their investment/GDP ratio

The German economics ministry claims that Germany’s surplus is "a sign of the competitiveness of the German economy and global demand for quality products from Germany”. But other economists disagree:

1. The surplus is the result of a structural surplus of domestic savings over investment. Perhaps Germany should be doing more to raise capital investment spending through a fiscal stimulus
2. Because Germany is inside the Euro, their currency has not strengthened as it might have done if Germany operated an independent floating exchange rate. The IMF estimates that Germany’s real exchange rate is now 15-20% undervalued.
3. Excess German savings (along with those of other surplus countries such as China) have contributed to the global glut of savings keeping interest rates at very low levels.

FT economist Martin Wolf has argued that Germany should do more to contribute to global economic growth with an investment stimulus in their domestic economy or tax cuts to stimulate household demand.

Two counter arguments to this are firstly, that the import component of German government spending is low (around 9%) so a fiscal stimulus would do little to increase German imports from other EU countries.

Secondly, there are long term demographic reasons for the rise in the German savings ratio - not least an ageing population. Short term tax cuts would do little to address this.