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German exporters pinched by 70-billion-euro price squeeze – DIHK
Global Banking & Finance Review®
Company
By Rene Wagner
BERLIN (Reuters) – German exporters are in an “extreme price squeeze” and incurred extra costs of 70 billion euros ($69 billion) this year due to soaring producer and import prices, the Association of German Chambers of Industry and Commerce (DIHK) said on Wednesday.
According to surveys and calculations made by the Association, German companies raised the prices of their exported goods by 14.7% in the first half of the year, but producer and import prices rose about twice as fast.
“The resulting burden on German foreign trade amounts to 70 billion euros for the first six months alone,” Volker Treier, head of foreign trade at DIHK, told Reuters.
“German foreign trade finds itself in an extreme price squeeze, from which it will not be able to free itself in the next few months,” said Treier, as companies only pass on part of their higher costs to overseas customers.
One issue is the weakness of the euro currency, which has fallen below parity with the dollar and tumbled to its lowest level in two decades, often making imported goods costlier.
Despite Russia’s invasion of Ukraine, supply shortages and coronavirus lockdowns in China, German exports actually increased by 13% in the first half of the year.
But according to DIHK calculations, adjusted for inflation, the real values are negative: exports have fallen by 1.5%.
“This means that German foreign trade is already in a recessionary phase,” said Treier.
According to the latest DIHK business survey, companies in key export sectors are particularly squeezed. For example, 17% of vehicle makers say they will not pass on cost increases to customers, and 35% of pharmaceutical companies also will not.
“Currently there are no signs that this tense situation will be resolved quickly,” said Treier, adding that some companies also feared weakening demand in major markets China and the United States.
($1 = 1.0085 euros)
(Editing by Matthias Williams and Bernadette Baum)
A price squeeze occurs when a company faces rising costs for inputs while being unable to pass those costs onto customers, leading to reduced profit margins.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power and affecting economic stability.
The euro is the official currency of the Eurozone, used by 19 of the 27 European Union member states, facilitating easier trade and travel among them.
A recession is a significant decline in economic activity across the economy, lasting longer than a few months, typically visible in GDP, income, employment, and trade.
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