Germany's interrelations with the global economy An analysis of imports and exports

Transcription

1 Statistisches Bundesamt National accounts Germany's interrelations with the global economy An analysis of imports and exports 2007 Published September 18, 2007 Subjekt-related information of this product you can receive directly from the Federal Statistical Office Division Gruppe III C, Input-Output-Rechnung, Vermögensrechnung, Televon: +49 (0) ; Fax: +49 (0) oder Statistisches Bundesamt (Federal Statistical Office), Wiesbaden 2008 Reproduction and free distribution, also of parts, for non-commercial purpose are permitted provided that the source is mentioned. Any distribution, also of parts, via electronic systems / data media requires prior permission. All other rights reserved.

2 Contents Introduction Summary 1. Overview of imports and exports 1.1 Germany s share in world trade 1.2 Foreign trade accounting Goods and services Foreign trade balance National vs. domestic 1.3 Structures of imports and exports Generic structure Exports Imports Surpluses and deficits 1.4 Exports and imports by regions European Union Other countries 2. Exports and employment 2.1 Exports and employment in general 2.2 Exports and employment in manufacturing industries 2.3 Exports and employment in service industries 3. Import of fuels 3.1 Supply and use of fuels Crude oil and natural gas Petroleum products 3.2 Development of import prices 3.3 Effects of increased prices of imports Annex Products and industries Glossary Input-output analysis 2

3 Introduction Germany is again world champion of exports, as the media recently reported. In 2006, the country actually held the top position for exporting goods the fourth time in series. First results of the foreign trade survey for 2007 confirmed that exports of goods are flourishing further on. Nation Accounts are another data source for telling something about development and structures of foreign trade. Like the foreign trade survey, National Accounts comprise imports and exports. But in addition to goods, National Accounts offer insights into foreign trade of services as well. Further, input-output tables as part of National Accounts and especially input-output analyses can reveal macroeconomic effects of imports and exports on the domestic economy. According to National Accounts, the first part of this paper describes structures and development of domestic production, imports and exports during the period of 1995 to The mainstays of exports and imports are portrayed. In the second part, some effects of exports on employment are described. Input-output tables allow to finding direct effects as well as to assessing indirect effects, triggered either by exports or by employment. The third part analyses of the effects of imports on final use like consumption, capital formation and exports. Of special interest are increased prices for imports of crude oil and natural gas as well as of imports of petroleum products. Readers interested in details of the statistical framework will find useful additional remarks in the annex, including a short description of input-output analysis. Summary Germany s share in world trade is still considerable, with the share of services in trade rather low. High exports have been yielding big surpluses for many years. In return, German tourists have spent money to some amount abroad. For many years, automobiles, machinery and chemicals were the most important German exports by far. Of these goods, the share of production to be exported was rising. Accordingly, foreign trade with automobiles were yielding the highest surpluses. On the other hand, imports of crude oil and natural gas surmounted domestic production by far. Even the imports of office machinery, including computers, are more than double of domestic production. German foreign trade is settled by more than half within the European Union. The biggest part of its surpluses in foreign trade are realised there, too. In 2005, of 38.8 million persons more than 8 million were employed directly and indirectly for exports. From 1995 to 2005, the share of employed persons working indirectly for exports was rising. Exports have doubled, while employment for exports developed slower. In 2005, 55% of the employed persons in manufacturing industries worked for exports. Changing the perspective, half of all persons working for exports were employed in the service industries. The share of services for producing some of the most important exports like automobiles was even higher. In 2005, imports of crude oil and natural gas supplemented by petroleum products had a share of 10% in total imports. From 2004 to 2005, the prices of these goods increased by 40% and 36%. The effect on goods and services for household consumption was an increase of prices of 0.8%. 3

4 1. Overview of imports and exports 1.1 Germany s share in world trade From 1995 to 2005, the world trade has doubled, according to the World Trade Organisation (WTO). World trade comprises the total of goods and services both imported and exported, on the basis of US-Dollars and at current prices. Germany s share in the world trade with goods was 9.5% in 1995 and 8.2% in The respective shares of services were 8.6% and 7.3%. Different from what could be expected in the face of a slightly declining share in world trade, Germany s imports and exports had developed almost as fast as the world trade, according to National Accounts. In 1995, Germany s foreign trade amounted to 877 billion Euros. In 2005, the amount was 1709 billion Euros. 1.2 Foreign trade accounting Goods and services Like in other industrial countries and odd enough for this naming, the production of services was outweighing the production of goods in Germany for a long time. The share of services in total production was constantly about two thirds from 1995 to Nevertheless, not so much services but goods are the predominant subject of foreign trade. Box 1: Services in foreign trade National Accounts include many kinds of services which are granted by the government free of charge or to domestic recipients only. Examples are services of public administration or public education. These services are no subject of foreign trade. However, commercial services can be provided to foreigners and thus are subject of foreign trade. A part of these services is dedicated to the consumption of households. Production and consumption of many of these services can not be separated. A current example is a hair-dresser s service. Therefore, his or her crossborder activities are restricted to visitors or to areas near the border. There are other commercial services which are used by enterprises. But for these services too, there are often linguistic, technical und cultural barriers. An example may be advertising. Modern information- and communication technologies have helped to create new kinds of services, for which the distance between producer and consumer is not important any more. Call-centres are well-known examples. Conventional services like certain financial services have also profited much from new technologies. All this has led to extending and forming international markets for services. From 1995 to 2005, imports and exports of commercial services amounted to about 23% of the foreign trade of goods, according to the WTO. Annual figures deviated only slightly from this average. The US American average of about 25% was somewhat higher. In the United Kingdom, commercial services amounted to 27% of foreign trade of goods in 1995, whereas in 2005 commercial services added up to even 38% of foreign trade of goods. For Germany, the respective figure was 21% on average from 1995 to 2005, with only minor annual deviations. Foreign trade balance In the framework of National Accounts, foreign trade is usually separated into imports and exports. So, the relations of a national economy to the rest of the world can be described by the basic categories of sales and acquisitions. For many analytical purposes imports and exports are more telling than foreign trade as a whole. For example, the exports of services of the United Kingdom in 2005 amounted to 49% of the exports of goods. In Germany, the proportion was only 15%. Import proportions for services of 30% for the United Kingdom and 26% for Germany were looking much more similar. Obviously, the exports were distinctive for the different weights of services in the overall foreign trade of both countries as it was stated above. 4

5 Globally, the amounts of imports and exports should be the same. In fact, they are only almost the same due to certain transport services assigned to just one side. For single countries, this approximate balance is rarely achieved. Often, the balance is not even aspired politically. Though in Germany there is a legal postulation for an economic balance in foreign relations, this is only intended to be a commitment for preventing damaging economic effects from outside as far as possible. Actually, a considerable export surplus has a long standing tradition in Germany. Box 2: Detriments for an economy Continuing big surpluses or deficits in foreign trade are judged by economists as bearing risks for the country in question and even for the world trade and the world economy. But a statistically balanced foreign trade can hide perils, too: In recent years there was a broad discussion about Germany becoming a bazaar economy. Off-shoring would reduce the depth of domestic production and labour skills along with salaries would emigrate, the argument went. Additionally, foreign trade would experience a specious prosperity caused by enhanced imports and exports of semi-finished goods. I n 1995, Germany had imports of goods and services at an amount of 434 billion Euros. In return, exports amounted to 443 billion Euros, which resulted in an export surplus of 9 billion Euros. Until 2001, Germany s foreign trade has developed with moderate export surpluses of 3% to 6% measured by the exports. Since 2002, the annual surplus rate has grown. Until 2005, exports exceeded imports annually by about 12% on average. In 2005, imports had increased to 796 billion Euros, while exports amounted to 912 billion Euros. So, the export surplus was 116 billion Euros. This trade balance contributed to Gross Domestic Product by a share of 5%. National vs. Domestic The figures mentioned above include residents with their expenditures abroad, while domestic expenditures of non-resident households are generally excluded. This national concept is currently used for the aggregates of imports and exports in National Accounts. Describing imports and exports by products is based on the domestic concept, however. That means to include the domestic expenditures of non-resident households and drop expenditures of resident households abroad. The concept makes sense especially for inputoutput tables, which are to describe domestic transactions. The following is based exclusively on such domestic figures. According to the domestic concept, in 1995, imports amounted to 396 billion Euros with exports of 429 billion Euros. For 2005 the respective amounts were 746 billion Euros and 891 billion Euros, resulting in an export surplus of 145 billion Euros. This is 29 billion Euros more than the trade balance of 116 billion Euros, according to the national concept already mentioned above. The difference amounts to what resident households spent more abroad than was spent domestic by non-resident households. 1.3 Structures of imports and exports Generic structure In publications of National Accounts, imports and exports are distinguished not only as being goods or services. Actually, goods are broken down by 31 items and services are broken down by 28 items. The following text is based on this breakdown of 59 groups of products. Exports Measured by the whole spectrum of 59 groups of products, the hit list of German exports is very short: In 2005, automobiles, machinery and chemicals covered over 40% of total exports. With metals and electrical machinery added, over 50% of total exports were 5

6 covered. So far, the German economy is concentrating on exports of manufactured products of middle technology. Table 1: The most important German exports Goods and services billion Euro percentage billion Euro percentage 1 Automobiles Machinery Chemicals Metals Electrical machinery Subtotal Total High tech as it is represented by the group of communication devices (including mobile phones) and the group of office machinery (including computers) ranked sixth and twelfth on the list of the most important exports in The top rankings of exported goods and goods produced domestic look very similar not just by incident. In 2005, automobiles were the most important group for domestic production, and machinery ranked second. In comparison to 1995, the two groups had changed their ranks. Chemicals held the forth rank, while food and beverages ranked third. Exports of automobiles amounted to 61% of domestic production in 2005, while in 1995 the proportion was only 53%. For machinery, the respective proportions were 48% in 1995 and 62% in With 54% in 1995 and 81% in 2005, the proportions of exports for chemicals were even higher. In 2005, only 11.5% of all exports were services. None of these services ranked better than thirteenth of all product groups. In the ranking of all services, business services were first. Concerning the output they ranked first of all product groups, too. In comparison, the share of exports of these products was low, in any respect. Their share of total exports was only 2.3% in Exports of business services were also low in comparison with domestic production. In 1995, they amounted to only 4%, while in 2005 the proportion has been 7%. Financial services and software services are standing almost symbolic for the process of globalisation. In Germany, exports of these two kinds of services together ranked about the same as water transport. In 2005, the latter ranked second in exports of services. The list, the ranking and even the shares of the five most important exports were the same in 2005 as in With product groups ranking lower, there was more fluctuation. The development of petroleum products was most significant. It shifted by eleven ranks to rank fifteen. The shift was caused by increased capacity of production and by price increases. Software services had a similar shift in ranking, with rank twenty-two in Imports In 2005, automobiles and chemicals together had a share of 19.3% in total imports of 746 billion Euros. The energy sources crude oil and natural gas ranked third, with some distance. All three product groups were covering about a quarter of total imports. It took five product groups more to cover slightly more than half of all imports. These were metals, machinery, communication devices, office machinery as well as food and beverages. The hit list of important goods to comprise 50% of the imports was thus a bit longer than the one for the exports. 6

7 Table 2: The most important German imports Goods and services 1) billion Euro percentage billion Euro percentage 1 Automobiles Chemicals Crude oil and natural gas Metals Machinery Communication devices Food and beverages Office machinery Subtotal Total ) Ranking referring to 2005 Imports of automobiles expanded the respective supply of domestic production by about 29%, both in 1995 and in Imports of chemicals amounted to about 57% of domestic production, with only 35% in Imports of crude oil and natural gas were the 18 fold of domestic production. Reversed, the domestic production of crude oil and natural gas amounted only to about 6% of the respective imports. In 1995, the ratio had been 18%, still. This development is evidence for an increased dependency on imports, as both energy sources are irreplaceable at the present state of the economy and technologies available. Only for a few further kinds of goods, imports exceeded domestic production: Concerning office machinery, imports were the 1.6 fold of domestic production in 1995 and the 2.3 fold in For communication devices, imports exceeded domestic production by 12%, while in 1995 these imports amounted only to 78% of domestic production. Imports of textiles, clothing and leather exceeded domestic production, too. In 2005, imports of clothing were almost twice the amount of domestic production. In 2005, the imports of services had a share of 13% in total imports. As for services by products groups, business services and land transport ranked first, by far. They held almost a quarter of total imports of services. Since 1995, the ranking of imported goods has changed significantly more than the one for exports. Crude oil and natural gas have shifted from eleventh rank to third rank. By almost the same pace, petroleum products shifted to tenth rank. The biggest leap forward was made by software services with fourteen positions to rank twenty-six. However, imports of crude oil and natural gas were seven times as high and imports of petroleum products were almost four times as high as imports of software services. Surpluses and deficits The ratio of imports and exports to domestic production can indicate the degree of economic interrelations of a country with the rest of the world. By this measure, Germany s interrelations with the world economy have intensified by 65% from 1995 to But more often, the focus is on comparisons of imports and exports without regarding production. Imports and exports are mostly compared by their totals, but they can also be compared by groups of products. Thus, special strengths and weaknesses of an economy can appear clearly. 7

8 Table 3: The biggest surpluses and deficits in German foreign trade by product groups Goods and services 1) billion Euro percentage 2) billion Euro percentage 2) 1 Automobiles Machinery Chemicals Precision instruments Electrical machinery Communication equipment Office machinery Clothing Petroleum products Agricultural products Crude oil and natural gas ) Ranking referring to ) Of total surpluses and total deficits respectively, by product groups In 2005, the highest export surpluses in Germany could be realised with automobiles, machinery and chemicals. These were product groups which belonged both to the biggest both in exports and in imports. With 181 billion Euros in 2005, they reached almost two thirds of all surpluses together which were obtained by product groups. Box 3: The structure of product groups The product group of automobiles comprises cars, busses, trucks, trailers and parts of them. In terms of variety, this is a small group. In contrast, the chemicals product group consists of seven subgroups, from the name-giving chemicals to pharmaceuticals. Machinery comprises also seven subgroups, reaching from household appliances over machine tools to weapons and ammunition. Accordingly, within these two groups there are quite different technologies of production, with products of different functionalities and for different purposes. This should be considered for further comparisons and analyses. In 2005, the surplus from exports of automobiles amounted to 83 billion Euros, which corresponds to 54% of the respective exports. In 1995, the surplus ratio had been 46%. The export surplus for machinery ranked second with 68 billion Euros in Measured by the respective exports, the surplus ratio has been 61%, both in 1995 and in This surplus ratio has been the highest in the top ranking product groups of imports and exports. It indicates a favourable position of German machinery in the world market. In 2005, the export surplus of chemicals amounted to 30 billion Euros or 29% of all exports of chemicals. With 36%, the exceeding share was still higher in High surpluses were also realised by the product group of precision instruments and by the product group of electrical machinery. Together with the top ranking group in exports, these five product groups yielded three quarters of the total export surpluses by product groups in Crude oil and natural gas caused the biggest foreign trade deficit by products in It amounted to 48 billion Euros. Adding petroleum products, the deficit amounted to 59 billion Euros, which made up 43% of total deficits accounted by product groups. In 1995, the deficit amounted only to about 18 billion Euro or 21% of the total deficit by product groups. Second ranking was the deficit of agricultural products with 12 billion Euros in 1995 and 13 billion Euro in Imports of office machinery and communication devices exceeded the respective exports by 11 billion Euros in By the same year, imports of 8

9 clothing exceeded exports at 8.2 billion Euros. The six product groups just mentioned accounted for two thirds of the total deficit by product groups in Exports and imports by regions European Union Over half of the German foreign trade is with other member states of the European Union (EU). More precisely, 55% of total imports and 57% of total exports were from or for member states in These shares have decreased continuously until With the expansion of the EU in 2004, they leapt to 60% of the imports and 63% of the exports. The following year the shares decreased again by one percentage point. Only five product groups set up half of all exports to the other member states of the EU. The first four groups were the same as for exports to all countries: Automobiles, chemicals, machinery and metals. Fifth in the ranking list of the most important export products to the EU countries were food and beverages. As mentioned above, the average percentage of exports to the EU, measured by exports to all countries was 62% in Exports of automobiles, chemicals and metals deviated only slightly from this average. With 52%, the EU export share of machinery was significantly lower, while the respective share of food and beverages was 81%, thus being significantly higher than the average. Six product groups seized not quite half of the imports from other EU countries in Among them were automobiles, chemicals, metals and machinery, which were also among the five most important imports from all countries. The other top ranking imports from EU countries were food and beverages as well as petroleum products. The share of these EU imports in the respective imports from all countries was 72%. In 2005, this share was especially high for automobiles, amounting to 76%. In 2005, 113 billion Euros or 78% of the total export surplus of 145 billion Euros fell upon foreign trade with EU member states. The biggest surpluses from trading with EU member states were on the same product groups as the surpluses of foreign trade with all countries: Exports of automobiles, chemicals and machinery together yielded about 83 billion Euros of surplus. The highest deficits in foreign trade with EU member states were caused by imports of crude oil and natural gas as well as petroleum products. They amounted to 20 billion Euros. Other countries In 2005, four product groups were most important for exports to countries not belonging to the EU: automobiles, machinery, chemicals and metals. They made up not quite half of the exports to those countries. Precision instruments ranked fifth on the list of these most important exports. Along with the group of machinery the group of precision instruments had a relative big share of exports to countries not belonging to the EU. The most important imports from countries not belonging to the EU were crude oil and natural gas, communication devices and office machinery. They summed up to about a quarter of the imports from beyond the EU. Adding automobiles, chemicals, machinery and metals resulted in not quite half of all imports from countries not belonging to the EU. Opposing the most important imports to the most important exports can be quite illuminating: Foreign trade with EU members is rather symmetric, i.e. the list of imports corresponds largely to the list of exports. This fits to the idea of the EU as a union of developed countries under roughly the same economic conditions. The picture of foreign trade with non-eu countries looks more asymmetric. This fits better to the idea of foreign trade as a balancing instrument for specific strengths and weaknesses of different economies. 9

10 2. Exports and employment For an export-oriented country like Germany, the extent of employment depending on exports is of special interest. Employment can be measured in several ways. Here, employment for exports is measured by employed persons. The term is not referring to single persons who actually can work both for exports and for domestic use. Rather, employed person is an abstract unit and base for expressing fractions of aggregates of (real) employed persons. Furthermore, employment is not only depending from exports directly but also indirectly. Both dependencies can be estimated on the basis of inputoutput tables. Box 4: Features of input-output tables, I Input-output tables have the unique feature to allow to analysing simultaneously direct and indirect effects of a variable (exports, for instance) across all industries or all product groups. For example, input-output tables help not only to determine the number of employed persons for the exports of a certain product group and the respective industry directly. Beyond, inputoutput analysis can determine the employed persons indirectly involved. These are employed persons producing the chains of all intermediary products incorporated in the exported product. 2.1 Exports and employment in general Technical progress and changing patterns of demand are influencing production and exports. But the structure of German exports has changed also due to globalisation since 1995: Merchandise and processed, semi-finished goods have become more important. Globalisation has also changed the conditions under which exports are produced: Intermediary products for finishing goods to be exported are increasingly imported. The expanding world trade is accompanied by an enhanced international division of labour. By the same token, foreign demand is increasingly influencing the labour market in Germany. In 2005, there were 1.4 million employed persons less working for consumption and capital formation than in This loss of workplaces could not fully be compensated by 1.0 million workplaces created by increasing exports during the same period. In 1995, about 15% of all employed persons were directly and indirectly dependent from exports. In 2005, the share of 8.4 million persons employed for exports was 22% of total employment. In 2005, 2.7 million persons more than in 1995 were employed for exports. Table 4: Employed persons dependent from exports in 1995, 2000 and 2005 Year Persons employed: Total among: dependent from exports direct and direct indirect indirect % From 1995 to 2005, the number of employed persons depending on exports was increasing annually, with the exemption of In 2005, employment for exports was 1.5 fold the employment for exports in During this period the exports approximately doubled, 10

11 both in current and in constant prices. So, per person employed for exports, significantly more exports were produced in 2005 than in In 1995, about half of all employed persons depending on exports worked directly for producing goods and services to be exported. The other half worked for producing intermediary goods and services, which were used for the production of goods and services to be exported. From 1995 to 2005, the partition of contributions to exports has slightly changed in favour of intermediary products. Box 5: Features of input-output tables, II In National Accounts, an industry usually comprises not only its main activity but secondary activities as well. Industries in input-output tables are different. Input-output tables are symmetric, i.e. an industry has to correspond strictly to a given product group. In other words, an industry in an input-output table has to be a one-product group industry without secondary activity. To that end, any secondary activity of an (original) industry is shifted to the industry with the respective activity as main activity. So, the industries in input-output tables are homogeneous industries which are not found elsewhere in National Accounts. 2.2 Exports and employment in manufacturing industries In 2005, only 17.9% of all employed persons were working in manufacturing industries. However, with 45.2% almost half of the employed persons directly and indirectly depending on exports were working in manufacturing industries. In 2005, more than half of all employed persons in the manufacturing industries were working for exports. In 1995, their share was less than 40%. From 1995 to 2005, the number of employed persons depending on exports in the manufacturing industries increased by 0.8 million, while the number of employed persons for domestic final use decreased by 1,7 millions in the same industries. Table 5: Employed persons dependent from exports by industries in 2005 Industries producing Persons employed: Total among: dependent from exports direct and direct indirect indirect 1000 goods manufactured goods services trade, transport, hotels total % goods manufactured goods services trade, transport, hotels total Foreign demand has been especially favourable for employment in the automobile industry. From 1995 to 2005, the number of employed persons depending on exports increased by more than This contributed to an overall increase of employed persons in the automobile industry, which shifted parts of the production abroad. 11

12 2.3 Exports and employment in service industries In 2005, the service industries occupied 73.4% of all employed persons. But only 50.1% of the employed persons directly and indirectly dependent from exports were occupied in service industries and only 15.7 % of them were directly occupied for the exports of services. Adding those which contributed indirectly to the exports of services, the share was 17%. In the service industries, 68% of the employed persons were contributing directly and indirectly to exports of goods and services in Especially business services as well as trade and transport services were needed for exports. For the three most important goods for exports, directly employed persons were less than the employed persons for services contributing to the respective production indirectly. In 2005, the automobile industry employed people indirectly for services, while the automobile industry itself employed only persons for exporting automobiles. With machinery, the picture looked similar. While people were employed directly for producing machinery to be exported, further employed persons provided services for that production employed persons for services indirectly needed for chemical production by far outweighed employed persons needed for exports of chemical production directly. Diagram 1: Employed persons for selected exports, 2005 thousand Automobiles Machinery Chemicals employed indirectly, supplying services for employed indirectly, supplying other goods for employed directly for 12

13 3. Import of fuels Primary materials are usually the starting point of most of the industrial production and some of them are literally fuelling production. In Germany only a very small share of the demand for primary materials is covered by natural resources. The rest has to be imported. Notwithstanding the significance of these materials, their imports made up only 7.6% of total imports in About 90% of the imported primary materials were coal, crude oil and natural gas. Only 10% of the imported primary materials were ores and minerals. Petroleum products and electricity as manufactured energy sources were imported, too. They made up 4.3% of all imports. Crude oil and natural gas supplemented by the closely related petroleum products had a share of 10% in total imports. In 2005, imports of crude oil and natural gas were 14.3 billion Euros in 1995 and 49.4 billion Euros in current prices. The respective growth rate of 245% was among the highest of all product groups during this period, with an average annual growth rate of 9%. The increase of imports of petroleum products has been drastic, too. In 2005, the imports of petroleum products amounted to 26.6 million Euros. Box 6: Features of input-output, III In National Accounts, supply is made up of domestic production and imports, while use can roughly be broken down to domestic uses and exports. While supply is usually expressed at basic prices (see the annex), uses are usually expressed at purchasers prices (see the annex). But the reverse is also possible: Supply at purchasers prices and use at basic prices. In inputoutput tables, supply can be identified as total of an industry (column), while the use of this supply can simultaneously be identified as total of the product group (row). The symmetry of input-output tables already mentioned in box 5 is also apparent in the corresponding order of rows and columns. Moreover, symmetry means the obligatory numeric equity of total supply and total use for corresponding columns and rows. As the basic prices of a product (group) are usually differing from its purchasers prices, an input-output table has to be either entirely at basic prices or entirely at purchasers prices. German input-output tables are at basic prices. 3.1 Supply and use of fuels Crude oil and natural gas The small amount of domestic output of the product group crude oil and natural gas is consisting by more than half of natural gas. But the imports of this product group were composed of crude oil by a share of 70% and of natural gas by a share of about 29% in Turning to the total supply of crude oil and natural gas, the picture does not deviate much from the picture of imports. But changing from supply at basic prices to supply at purchasers prices has an effect: The amount of natural gas exceeded the amount of crude oil slightly. Supply of crude oil and natural gas was almost completely used domestic (98%). Almost 75% of natural gas and crude oil were for intermediary use for production and almost 25% were used by households. While crude oil is an intermediary input for many kinds of fuels and petrochemical products, natural gas is predominantly consumed for fuelling in industries and households as well. Petroleum products Petroleum products are made of crude oil. The most important ones are diesel and gasoline, light and heavy fuel oil as well as aviation fuel. Due to the diversity of petroleum products, there are different uses (households, industries) for them at different proportions. For the analyses following, this is not too important, as the prices of all the petroleum products are depending directly from the price of crude oil. 13

14 Table 6: Supply and use of crude oil and natural gas 2004 at purchasers prices, billion Euro Crude oil Natural gas Mining services 1) Total Output Imports Taxes less subsidies 2) Total supply / total use Intermediate consumption 3) Final consumption 4) Fixed capital formation Exports ) For crude oil and natural gas 2) Taxes and subsidies on goods 3) Including changes of inventories 4) Of households and of government 3.2 Development of import prices During the period from 1995 to 2005, imports of crude oil and natural gas, and of petroleum products increased about 2.5 fold at current prices. However, measured by energy equivalents (petajoule), the imports of these products developed quite differently: Imports of crude oil and natural gas increased by only 16% and imports of petroleum products even decreased by 5%. Diagram 2: Imports of crude oil and natural gas Index Crude oil and natural gas, Euro Petroleum products, Euro Crude oil and natural gas, Terajoule Petroleum products, Terajoule The difference stated above is obviously caused by the development of the import prices. In recent years, the increase of prices for crude oil and natural gas was especially high. The annual rate of increase from 2004 to 2005 amounted to 40%. By 2006, the rate was still 24%. During the period of 1995 to 2005, the import prices of crude oil and natural gas increased by 250%. Import prices for petroleum products developed quite similar as the import prices for crude oil and natural gas. The big increase from 1999 to 2000 was followed by a short period of even falling prices. From 2004 to 2005, import prices of petroleum products soared again. 14

15 Since 1995, Germany had to export ever more to compensate the amounts needed for imports of crude oil and natural gas as well as petroleum products. But the additional total exports still outperformed by far the amounts additionally needed for imported crude oil and natural gas as well as petroleum products. In 2005, the total export surplus would have been bigger by about a third without net imports of crude oil and natural gas by 48.3 billion Euros. Net imports of petroleum products were quite moderate, as there were respective exports at a significant amount, too. 3.3 Effects of increased prices of imports Input-output tables show for instance that in 2005 almost a quarter of the products for final use were imported. Beyond, the tables can also be used for analysing effects of increased prices of certain imports. So, the effects of increased import prices from 2004 to 2005 for crude oil and natural gas (40%) and for petroleum products (36%) on the prices of products can be analysed for which these imports are needed. All those products should be much affected, which are containing much of the imported products in question, directly and indirectly. An input-output analysis shows that without increased prices for gas and oil, the average prices for consumption of households would have been lower by 0.8%. The average prices of consumption of general government would have been lower by 0.3% and the average prices for capital formation of construction would have been lower by 0.5%. Diagram 3: Effects of increased prices for crude oil and natural gas (+40%) and petroleum products (+36%), 2004 to 2005 percent 1.4 on prices for Consumption Consumption of households expenditure of government Fixed capital formation, machinery Fixed capital formation, buildings Exports Total final use Not surprisingly, prices for certain products of household consumption increased significantly: Prices for gasoline and diesel increased by 38% and prices for heating and cooking increased by 9%, due to the increase of prices of crude oil and natural gas as well as of petroleum products. For using transport services households had to take into account prices increased by 15%. 15

16 Annex 16

17 Products and industries Product groups used above are referring to the Classification of Products by Activity (CPA), which is the standard classification for products in National Accounts of all member states of the European Union. For industries the same names can be used, as the respective classification of industries is not deviating at least at the level of industries used above. Regular 2-digit groupings The text above is mostly referring to 2-digit divisions, which are (not quite correctly) called groups in the text. There are 59 divisions which is the standard level of breaking down products and industries in National Accounts. Listed below are the divisions in alphabetical order of the short name for groups (divisions) used in the text above, with their full denomination and the respective code (CPA). Short text Full text (referring to products) CPA-Code Agricultural products Products of agriculture, hunting and 01 related services Automobiles Motor vehicles, trailers and semi-trailers 34 Business services Other business services 74 Chemicals Chemicals, chemical products 24 and made-made fibres Clothing Wearing apparel, furs 18 Coal Coal and lignite; peat 10 Communication devices Radio, television, and communication 32 equipment and apparatus Crude oil and Crude petroleum and natural gas; 11 natural gas services incidental to oil and gas extraction, excluding surveying Electrical machinery Electrical machinery and apparatus n.e.c. 31 Food and beverages Food products and beverages 15 Financial services Financial intermediation services, 65 except insurance and pension funding Land transport Land transport and transport 60 via pipeline services Leather Leather and leather products 19 Machinery Machinery and equipment n.e.c. 29 Metals Basic metals 27 Office machinery Office machinery and computers 30 Petroleum products Coke, refined petroleum products 23 and nuclear fuel 17

18 Short text Full text (referring to products) CPA-Code Precision instruments Medical, precision and optical 33 instruments, watches and clocks Software services Computer and related services 72 Textiles Textiles 17 Trade Services Wholesale trade and commission 51 services except of motor vehicles and motorcycles Water transport Water transport services 61 Special groupings in input-output tables Input-output tables are grouped by 71 industries and by 71 product groups. They are slightly more detailed than the common National Accounts. But chemicals is the only one of these more detailed groups to be found in the text above. In section 1. of the text, chemicals are what is indicated in the list above. Section 2., however, is referring to input-output tables. There too, chemicals are CPA-code 24, but excluding pharmaceuticals (CPA-code 244). Other groupings of products and industries It is often useful to have special aggregates of products or industries. The most important are: Short text CPA-Codes Goods Manufactured goods Services Trade and transport 51, 60, 61, 62 Trade, transport, hotels 50-55,

19 Glossary Basic prices Basic prices are prices of production in the first place. Therefore, they include subsidies of products. But in contrary to purchasers prices they do not include taxes on products. Further, they do not include trade and transport margins on products. Currency Figures of German National Accounts are in Euros. Figures for years before 2000 were converted from Deutschmark (by the ratio of Deutschmark to 1Euro). Figures of world trade (source: WTO) are in US Dollars. Employed persons Employed persons comprise all persons employed in Germany, except their employment for services rendered to foreign tourists. These services are especially services of trade, transport, hotels and restaurants. Annual figures are averages. Employed persons are no inherent part of input-output tables, rather, they are appended. Employment Employment can be measured by employed persons. For a more detailed analysis, other measures like hours worked would be preferable. But currently, this measure is available only by 31 industries (source: Institut für Arbeitsmarkt- und Berufsforschung, IAB, Nuremberg). Input-output tables are more detailed. So, this measure of employment cannot be used directly for input-output analysis. Exports Exports are valued at fob, i.e. they include all costs to be free on board to be shipped from the exporting country. Fob is considered as being equivalent to purchasers prices. Exports are part of final use. Final use Final use is consumption of households and government, capital formation and exports, supplemented by changes of inventories. Final use is usually valued at purchasers prices. Final use is part of use. Goods Goods are products ranging from agricultural over manufacturing till recycling. (Codes of the CPA). Goods are products. Imports Imports are valued at cif, i.e. they include costs, insurance and freight to the border of the importing country. Cif is regarded as equivalent to basic prices. Imports are part of supply. Input-output tables Input-output tables are mirroring the basic goods and production accounts of National Accounts, spreading them by product groups and by industries. Input-output tables for Germany are available from 1995 to 2005 at present, with the table for 2005 estimated. These tables are built up according to the standards of Eurostat, i.e. especially that their totals are corresponding to the aggregates of National Accounts. Intermediary use Intermediary use is products which enterprises are currently purchasing to keep production running (excluding capital goods). Intermediary use in input-output tables is broken down by industries and by product groups. This square matrix is the core of input-output tables. Intermediary use is part of (total) use. National Accounts National Accounts is a coherent system of accounts describing an economy within its national boundaries, but with its relations to the rest of the world, too. Figures from National 19

20 Accounts in the text, tables, and diagrams above were reported in August 2007, referring to 2006 as the most recent reporting year of the annual report. Output Output is domestic production, valued at basic prices. Output is part of supply. Products A product can be a good or a service. Purchasers prices Purchasers prices are prices a purchaser has to pay for a product. They include taxes on products as well as trade and transport margins. In contrary to basic prices, purchasers prices do not include subsidies on products. Services Services are part of products. (For instance trade, transport or business services, codes of the CPA). Supply Supply is consisting of output and imports. Production Production is the result of production processes, not explicitly considered as valued. Valued production is output. Valuation Basic prices and purchasers prices are the current concepts to value products in National Accounts. Especially for imports and exports there are other concepts. Use Use in National Accounts is consisting of intermediary use and final use. World trade World trade figures used in this paper are issued by the World Trade Organisation WTO, employing different concepts for merchandise trade and trade of commercial services. Therefore, these figures trade should not be added. Goods and services in National Accounts are corresponding to merchandise trade and trade of commercial services. Goods and services in National Accounts can be added to total imports and total exports. 20

21 Input-output analysis Input-output analysis is bound to input-output tables. Analysing these tables means exploiting formal features of input-output tables in the first place. An important feature is the equity of supply by industry with use by the typical product of this industry. Second, use is divided to intermediate use and final use, while supply is divided to intermediate use and primary inputs, which are essentially consisting of value added. Industries Ft Products Intermediate Consumption Final use Supply Primary Inputs Use Pt As total intermediate use (consumption) is the same for supply and use, there is a strict interdependency between the rest of both, which are final use and primary inputs. This interdependency is embodied in a special form of the intermediate use matrix, the Leontieffmatrix, named after its inventor, Nobel-prize winner Wassily Leontieff. The mechanics of matrix algebra are such that multiplying the final use matrix (better: its totals vector Ft) with the Leontieff matrix will result in the matrix of primary inputs (better: its totals vector Pt). The reverse is true, too: Multiplying the primary input matrix with the Leontieff matrix will result in the final use matrix. Leontieff gave economists something to play with: Feeding the input-output system for instance with only a single item of final use by a certain, not necessarily the original value, it will show primary inputs needed for this final use. The system shows how much primary inputs from which industries are needed to produce the single final use in question. This general feature of the input-output tables can be varied in many ways. Apart from the mere algebra for an input-output analysis, the most important thing to be aware of is that input-output analysis is based on a special model of the real economy. As all models, it has strengths and weaknesses. As for the weaknesses, input-output tables are hard to be compiled. Further, input-output analysis is inherently a model of fixed proportions, i.e. a static model. For instance, there is no elasticity (flexibility of volume relative to changing prices). The effects of increased prices can only be modelled by comparing two different states of an input-output table. The same is true for time as a modelling factor. Accordingly, a single input-output table cannot show Keynesian multiplier effects. As for the strengths, an input-output table is easy to handle, though being a detailed model comprising the whole economy. Further, an input-output table can be supplemented: Employment by industries can be appended to primary inputs, for instance. Assuming fixed proportions of employment to value added or compensation of employees (as part of value added), employment can be a part of input-output analysis. 21