European Economy. Economic Papers. Germany's growth performance in the 1990's

Part of the drop in the trade balance
reflects that the efforts of West German
enterprises were redirected from global
markets to East Germany. However, the
speed of the decline and the fact that
Germany never recovered its export
share points to a more substantial
problem, which is to be found in the
sharp increase in the real effective
exchange rate. Notably, compared to the
pre-unification levels, Germany has not
increased its export share in line with the
statistical GDP growth of about 12% that
the integration of East Germany brought
about. Much less is export growth in line
with the increase in population by about
one quarter.
The relative under-performance of
German exports can be nearly
exclusively attributed to the performance
of East Germany, while the performance
of the West is at least not worse than that
of the other European Union countries.
Even though in 1995 the German
statistical office stopped producing
separate trade figures for East and West Germany, the figures until 1994 give a clear indication
of the order of magnitude to which the New Länder run a trade deficit. Table 3.1 shows the net
external balance of goods and services for unified Germany, the West and the East. For the
latter two cases, the bilateral regional trade deficit is treated like external trade. The table shows
very clearly the cause for the very sharp decline in the external balance as a result of re-
Figure 3.5: Germany’s current account
balance
a) Current Account in % of GDP
-2
-1
0
1
2
3
4
5
1976
1980
1984
1988
1992
1996
2000
b) Trade balance
0
1
2
3
4
5
6
7
1976
1980
1984
1988
1992
1996
2000
c) Services balance
-3
-2
-1
0
1976
1980
1984
1988
1992
1996
2000
d) Balance of primary income
-1
0
1
2
1976
1980
1984
1988
1992
1996
2000
e) Net current transfers
-2
-1
0
1976
1980
1984
1988
1992
1996
2000
Source : Deutsche Bundesbank;
Note : West Germany until 1990

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unification. While in 1990, West Germany alone ran a trade and services surplus of 142 billion
DEM, the figure for unified Germany a year later shows a deficit of 6.9 billion. The separate
figures show that this drop does not find any counterpart in the West figures. To the contrary, its
nominal net position actually increased slightly. The New Länder, by contrast, started their first
year as part of the Federal Republic with a deficit of 169 billion DEM. This is equivalent to
nearly 80% of their GDP. In other words, consumption and investment in the East were nearly
twice as high as actual production.