Current Account Surplus in Germany is Worrying
Currently among the G20 countries, Current Account Surplus in Germany is an outlier with 250 billion euros every year. Is this a good or bad thing? We are about to discover shortly.
Current account surplus is defined as a positive difference between a country’s savings and investment. This means that a country is a net lender.
On the other hand a current account deficit means that a country is a net borrower to the rest of the globe. Kenya and many developing countries have current account deficits. They borrow a lot. Below is a summary of what I’ve just said:
Current account = exports – imports
Back to the Germany story. Countries with large current account surplus (Germany and China) are mostly large exporters of manufactured goods or energy products. A look at the list of the countries with the largest current account surplus is self-explanatory: Germany, China, Netherlands, Kuwait, Saudi Arabia, Qatar, Switzerland, Japan and Russia.
During the G20 Meeting in Hamburg between 7 and 8th July, countries with huge current account surpluses in Germany and other countries was being discussed. These countries were violating the rules. Germany was the greatest source of concern.
Members of G20 had agreed to reduce current account imbalances for a better world. This surplus is nothing to be proud of as it is the case with Current Account Surplus in Germany . The economic condition has its own weaknesses. For instance, the current account surplus creates appreciation of currency in such countries. This is intended to maintain the country’s export competitiveness.
We will keep you updated on Current Account Surplus in Germany and related stories.