Balance of Payments the OECD Compiles Balance Essay

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Balance of Payments

The OECD compiles balance of payment information for member states. The balance of payments for Germany and Japan in each of the past four years was as follows:

Germany

Japan

OECD

Both nations are major net exporters, the largest two in the OECD by far. Both nations saw similar general performance trends over the four-year study period. The high point was 2007, with a dip the next two years, followed by a rebound in 2010. In general, this trend can be attributed to the economic downturn. Both of these nations, as net exporters, rely on the financial health of their customers in order to do business. The economic downturn hurt the business of both nations. There are, however, differences between the performances of the two nations that should be examined.

Germany saw a decrease in 2008 of 8.7%, while Japan's balance of payments decreased 25%. As both nations are exporters, the decrease in worldwide economic activity was likely to impact on the balance of payments for each country. Germany's net exports dropped 17.9% in 2009, while Japan's dropped 10.3%. In 2010, Germany saw an increase of 0.8% while Japan's balance of payments increased 37%. These performances, while following the same general trend, are clearly quite divergent in their intensity.

In general, Japan's performance has been more volatile.

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The balance of payments fell sharply with the onset of recession through 2008-2009. Then, when the recovery began, Japan's balance of payments increased sharply. Germany, in contrast, saw a drop in its balance of payments that was less severe than was Japan's, but the 20100 recovery was only marginal while Japan's was substantial. To understand the dynamics behind this performance divergence, it is important to understand the characteristics of trade for each nation.

Both nations are primarily exporters of manufactured goods, and Japan in particular has few natural resources, so the 2010 increase in net exports in Japan was not related to the spike in commodities prices. Germany's major trading partners are France, the U.S., the Netherlands, the UK, Italy, Austria and China (CIA World Factbook, 2011). Germany has positive trade balances with France, the U.S. And the UK in particular. These partners were all suffering from the impacts of the recession in 2010, with little sign of recovery. This would be expected to continue to suppress German exports to these nations.

Germany's performance is also affected by its currency. Germany was in part insulated from the recession by its membership in the EU and the Eurozone. This provides Germany with a measure of trade stability in that its trade policies are tied to those of its neighbors and.....

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