Trade data mark weak end of a strong quarter

German exports dropped in March, confirming the shot-across-the-bow feeling from other industrial data earlier this week. As just reported by the Federal Statistical Office, German exports dropped by 1.8% MoM in March, the sharpest monthly drop since May 2013. At the same time, imports dropped by 0.9% MoM, narrowing the seasonally-adjusted trade balance to 14.9 bn euro, from 15.8 bn euro in February. As already reflected in other industrial data, the month March saw a stronger real economic impact from the Ukrainian crisis and the Chinese slowdown than confidence indicators had suggested. It seems as if recent events have only accelerated a trend that became already visible at the start of the year: German exports to Russia had already dropped to only 2.6% of total exports in the first months of the year, the lowest level since late-2010. Looking ahead, the destiny of German exports remains in the hands of its good old trading partners in the West outside of the Eurozone. The US and the UK remain Germany’s biggest non-Eurozone trading partners, with the share of exports to the UK recently rising to the highest level since 2005. All in all, with ongoing geopolitical problems and the slowing emerging economies, it looks as if Germany’s famous export engine could still be sputtering for a while. After today’s trade data, the bean counting for next week’s first quarter GDP release can start again. The available monthly data suggest another strong growth performance. The construction sector alone should already contribute some 0.4 percentage points to GDP growth. Add to this strong retail sales, low inventories and, despite the latest weakening, still slightly positive exports and all the ingredients for another acceleration of the German economy are there. We expect German Q1 GDP growth to come in at 0.7% QoQ.