Trade is the lifeblood of a global market. Exports growth drives the rate of economic growth, and the distribution of income and wealth. Its effect is thus significant on internal trade and economic stability.  With such importance of exports, yesterday Germany reported record exports and imports growth in July since the German reunification.

The record growth is a much-cherished one as it quells fears of China having any impact on this economic powerhouse. Germany not only is Europe’s leading economy, but it is now also the second-largest exporter in the world. The record highs in value terms indicate the appetite for goods from Germany is alive and well, and the country tends to expect continual economic growth.

Trade Data

According to Germany's Federal Statistics Office, exports gained a seasonally adjusted 2.4% from prior month to 103.4 billion euros ($115.35 billion) in July. Imports were up 2.2% to 80.6 billion euros. These are the highest values since records started in 1991. Both exports and imports comprehensively beat expectations of gains of 0.7% and 0.5% respectively. On seasonally adjusted basis, foreign trade balance showed surplus of 22.8 billion euros.

Looking into the unadjusted breakdown, exports to countries within the Eurozone gained 5.5% year on year. Shipments to countries within the European Union not using the common currency gained 6.9%. Meanwhile, another encouraging sign was the 6.4% growth in demand for German goods outside the EU.

In the seven months through July, shipments to EU countries outside the currency bloc increased 8.3% year on year and those for non-EU nations were up 7.9%. For countries within the euro area, the seven-month shipment gained 4.8%. This comes at a time when the euro has showed a sharp downward trend against the US dollar this year. For that matter, the benefit of a weaker Euro and Germany being in a comfortable position cannot be ruled out.

Going back to 2014 data, Germany exports had increased to $1.511 trillion, up nearly 4% over 2013. International Monetary Fund’s (IMF) World Economic Outlook Database showed Germany’s total GDP in 2014 was $3.621 trillion. Thus, exports contributed 41.7% of total German economic output.

Is China Too Weak to Impact?

China was the fourth-biggest export market for Germany in 2014 and had accounted for 74.5 billion euros of German exports. This translates into 6.6% of total exports and 2.6% of German’s GDP. However, if we compare this with the other two key trade partners, China’s contribution would look pale.

The rest of the Eurozone, the US and UK accounted for 52.6% of exports. Growth has been picking up in these regions, which we believe should be a shield against China’s slowdown. In 2014, France was the biggest export market and accounted for 101.9 billion of euros of shipments. The US and UK were the next two destinations, accounting for 96.1 billion euros and 84.1 billion euros of demand for goods.

In the quarter ending June, Germany’s economic growth was driven by exports. While there were fears in some corners about the China slowdown impeding global trade, the encouraging data suggests that economic growth should continue. Germany’s central bank, the Bundesbank, is of the view that growth in Germany is set to be “solid” in the second half. Offsetting Chinese concerns, two of the key trading partners – the US and Britain, will contribute to growth.

Experts Back the Deutschland

German Economy Minister Sigmar Gabriel had commented late last month that China was not to impact the German economy. While he did acknowledge the concerns in China to be “justified,” he said “it will not contribute to a deterioration of developments in Germany.”

Jens Spahn, the parliamentary state secretary for Germany's Federal Ministry of Finance, had said that there was no reason to panic as Germany has “growing domestic demand and salaries.” On a more optimistic note, the head of the German trade association Anton Boerner had said before the release of the data that Germany is expected to post export record this year.

However, there were some analysts who had a skeptical view. They opined that the trouble with emerging market currencies began in August and the China concerns intensified. The German carmakers should be worried here, as China is a key market.

Nonetheless, as we mentioned earlier, the 2014 growth was encouraging. Those gains in 2014 had come despite the Russia-Ukraine crisis that led to sanctions. Global growth was also somewhat sluggish in 2014.

Stocks to Watch

As already mentioned, exports growth does lead to improved distribution of income and wealth in a country. With a surging trade surplus, Germany may transfer the extra money into investment projects within the border. Along with this, the economy is believed to be well poised. Bundesbank is projecting solid second half and Spahn had said that Germany still expects 1.8% economic growth in 2015. These should help German companies and exporters.

The German DAX gained 1.6% following the trade data. Separately, the European STOXX 600, London's FTSE 100 and the French CAC also gained over 1%. If we focus on stocks now, we may broadly look at sectors including Vehicles, Machineries, Electronic equipment and Pharmaceuticals. These export product groups were in the top 5 list of German exports and accounted for highest dollar value in German global shipments in 2014.

Vehicles sector was the leading export product group in 2014. Germany’s 17.7% of total exports came from this sector. Germany’s Volkswagen AG (VLKAY - Snapshot Report) is the largest automobile manufacturer in Europe and was reportedly among the top German exporter. Volkswagen gained 4.6% yesterday.

From electrical manufacturing machineries sector, Aixtron SE (AIXG - Snapshot Report) jumped 7.3%. Aixtron SE is a leading provider of deposition equipment to the semiconductor industry across the world.

From the broader computer software industry, Zacks Rank #2 (Buy) stock SAP SE (SAP - Analyst Report) saw strong revenue gains in the second quarter from regions including Asia Pacific Japan, Americas and the Europe, the Middle East and Africa (EMEA). SAP had gained 2.5% yesterday.

Pharmaceuticals had accounted for 5.3% of exports in 2014. Here, clinical-stage biopharmaceutical company Affimed N.V. (AFMD - Snapshot Report) was a big gainer yesterday. It gained 13.1%. Another key player, Fresenius Medical Care AG & Co. KGAA (FMS - Snapshot Report) saw second quarter worldwide organic revenue growth of 8%. By geography, North America revenues rose 16.8% year over year to $2.95 billion. Fresenius Medical Care gained 4.2% yesterday.

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