German surplus proves mixed blessing for Merkel

A report by the influential Ifo economic institute has revealed that Germany has maintained the world's largest current account surplus for the fourth consecutive year.

The figure of $293 billion is made up of the flow of goods, investments and services through the country over the past year, with Japan next with $194 billion. For many years, Germany has been criticized for not doing more to encourage domestic demand and imports, as a way of evening out global trade.

"Stronger exports to the United States due to the stronger depreciation of the euro and increased exports to the United Kingdom, where demand recovered somewhat, saw total German exports rise sharply again in the second half of the year," said Ifo economist Christian Grimme.

"By contrast, imports expanded very weakly in the summer half of 2019－the ongoing industrial recession in Germany severely curbed imports of intermediate goods."

US President Donald Trump has been a frequent critic of Germany's export strength, fueled by industries such as its strong automobile industry, which is key to the size of the surplus. But despite criticism of her fiscal policy, Chancellor Angela Merkel has so far remained defiant.

"We are proud of our cars and so we should be," she said last year, pointing out that many German cars were built in the United States and exported to China.

However, Merkel, who has already announced she will not seek another term as chancellor when her current stint comes to an end in 2021, could find her Christian Democratic Union, or CDU, on a collision course with its government coalition partners the Social Democratic Party, or SPD, about what to do with the surplus.

The more left-of-center SPD wants more spending on public services and social projects, while the center-right CDU favors tax cuts.

"Short-term stimulus is still not really needed" in Germany, ING chief economist Carsten Brzeski said. "Instead, the surplus should be used to step up investment efforts in the well-known sectors: digitalization, infrastructure and education."

Norbert Walter-Borjans and Saskia Esken were recently appointed the new joint-leaders of the SPD, and have indicated their willingness to bring down the coalition government unless Merkel agrees to some of their demands in a renegotiation of the current support deal.