Germany called out for stoking trade tensions with its 'fat' current account

German Chancellor Angela Merkel. Photo / AP

Germany's "fat" current account has been attacked by one of the world's most influential economic bodies, and described as a trigger for the emergent trade war.

The country has the world's largest current account surplus of US$287 billion ($409.6b), 8 per cent of its GDP, and half that of China's, according to the Institute for Economic Research.

This is one of the most important measures in trade relations – because it shows that Germany sells far more than it buys from other countries, according to the Daily Telegraph.

The head of the Organisation for Economic Co-operation and Development (OECD) has now weighed into the trade debate telling reporters in Berlin that Germany was partly to blame for the rise in protectionism and that it ought to dramatically up its domestic spending levels.

"Your current account got fat because you won productivity and competitiveness compared to the others in Europe. Now, does that give rise to protectionists? Of course," OECD secretary general Angel Gurria said.

"So basically, you could spend more, yes. You could import more, yes," Gurria added.

The massive surplus is known to have been been particularly aggravating for President Donald Trump, who has made it his mission to bring down the US trade deficit. His latest effort to tackle it has involved hitting key allies with levies on imports of steel and aluminium.

Germany is the EU's biggest exporter to the US. Over one million jobs are thought to depend on trade with America.

Germany's surplus has also been heavily criticised by the world's lender of last resort, the International Monetary Fund, and its fellow eurozone members.

German Chancellor Angela Merkel has tried to defend the country's surplus in recent months, claiming that it was narrowing, thanks to increased domestic demand.

However, earlier this year, an exposé by German economists claimed that the country was attempting to mask the true scale of its current account surplus in order to avoid more criticism.

Fears of a trade war have been mounting following the US's move to slap extra taxes on metals imports. The step has prompted tit-for-tat responses from trading partners, and complaints to the World Trade Organisation, the global arbiter of trade disputes. Trump has called the body a "catastrophe".

Trump is now focussing his attention on protectionist moves against German cars.

There are also renewed concerns that the trillion dollar trade deal struck between Canada, the US and Mexico might not be preserved as it reaches the end of a crucial negotiation period.

The OECD has predicted robust growth in the German economy, of 2.1 per cent for 2018, and in 2019.

Separately, a survey of German investors, by the ZEW institute, showed that sentiment had fallen to its lowest level since 2012. The shift down to -16.1 in June from -8.2 in May, indicated a darkening mood among investors as rising trade tensions take their toll and as the German economy has shown signs of cooling.