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German Exports to Russia Plummet

With Germany’s export-dependent economy slowing, EU sanctions have hit Mittelstand companies particularly hard

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This article originaly appeared in Financial Times

German exports to Russia tumbled by more than a quarter in August, underlining the impact of sanctions on Europe's biggest economy. But it is not just Germany that is suffering. Tourism across Europe and North America has taken a knock, too.

<figcaption>Sanctions have been disastrous for German business</figcaption>
Sanctions have been disastrous for German business

In August, Germany exported goods to the value of €2.3bn to the Russian Federation, a decline of 26.3 per cent on August 2013, Germany’s federal statistical office said on Wednesday.

Between January and August 2014, German exports to Russia declined by 16.6 per cent to €20.3bn compared with the same period a year earlier.

The EU imposed sanctions in finance, defence and oil equipment in July, following Russia’s annexation of the Crimea and the suspected shooting down of a Malaysia Airlines flight by pro-Russian separatist forces in eastern Ukraine.

The US and Canada imposed sanctions, too, and both have seen sharp drops in arrivals from Russia.

Before the Ukraine crisis, the number of Russian trips to the US had been growing substantially – up 36 per cent in January compared with the same month in 2013, and by 30 per cent across the first three months of 2013.

But growth in trips to the US slowed in the second quarter to13 per cent. Russian arrivals in Canada deteriorated even further. In July arrivals were down 17 per cent.

In Europe, Poland, Italy, Germany and Spain suffered a sharp fall in arrivals. Before the annexation of Crimea, Russia was becoming one of Europe’s most important source markets, accounting for 6 per cent of all arrivals in the continent, said Oxford Economics.

Turkey, Greece and Cyprus, however, decided against imposing sanctions and all three countries saw an increase in Russian tourists.

With Germany’s export-dependent economy slowing, the EU restrictions have hit Mittelstand companies particularly hard.

Russia is the fourth most important export market for German machinery manufacturers, many of which are small and medium-sized.

German manufacturers fear the sanctions will jeopardise their reputation as reliable suppliers, and will lose business to Chinese rivals.

The data released on Wednesday show that exports of German motor vehicles and vehicle parts were hardest hit, dropping 27.3 per cent between January and August, compared with the same period in 2013.

Exports of machinery dropped 17.2 per cent and chemical products dropped 5.9 per cent.

Although Russia accounts for less than 3 per cent of Germany's exports overall, the crisis – coupled with a slowdown in other emerging markets – has rattled German business confidence.

Economists predict Germany's GDP growth could be as low as 1.5 per cent for 2014, compared with earlier estimates of 2 per cent.


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