Germany has released data showing that it had its worst month of exports since the financial crisis.
BIUK’s Mike Bird wrote of the data that the poor performance was for August which meant that the data reflects economic conditions before “any potential effect from Volkswagen’s emissions scandal, which didn’t break until late in September”.
He also noted that:
The German economy has also benefited more than most from the rise of China’s middle class — the emergence of huge demand for quality cars and industrial equipment has boosted the country’s outward trade.
But the recent slowdown in the Chinese economy has caused some understandable concern — economists are increasingly doubtful as to whether the world’s second-biggest economy can reach its own growth targets in the years ahead.
That reminded me of a chart that David Flanagan, Director Interest Rate Markets at Curve Securities, showed me of the relationship between German exports and the Chinese leading indicator of economic growth some time ago.
Flanagan was following the same logic as Bird articulated above about the relationship between Chinese growth and German exports back in 2009 and stumbled upon what looks like a fairly robust, but not perfect, indicator of German exports.
That indicator is the year on year move of the Chinese leading indicator against the year on year move in German exports lagged 6 months.
Here’s the latest version of the chart after last night’s data.
Even the most casual relationship suggests that last night’s weak numbers are unlikely to be the last bad trade outcome Germany experiences. Add on a bit of Volkswagen induced collapse in demand and Europe’s second biggest economy might be in for some more disappointing data.
But this relationship highlights why the Fed was worried about China and “conditions abroad”, why the BoE last night was worried about a slowdown in China and emerging markets and why the ECB will be resisting any strength in the Euro in the months ahead.