Mark Lister: Let's hope VW woes don't drive powerhouse off track

A Greenpeace activist holds a protest poster in front of a factory gate of the German car manufacturer Volkswagen. File photo / AP

Opinion

I've personally never been a great fan of Volkswagens or Audis. They're good-quality vehicles, but the styling is a little dull for my liking. However, regardless of your view of the product, no one can deny the importance of VW to the German economy.

The German Deputy Finance Minister, Jens Spahn, certainly isn't taking the scandal lightly. He recently noted that the car industry was crucial to the German economy, and the potential impact of the VW scandal should "worry us a little".

That's probably an understatement, as cars are Germany's most successful export product, representing almost a fifth of total exports and employing three-quarters of a million people.

VW is the biggest of the German carmakers, employing 265,000 people in Germany and accounting for 12.9 per cent of the world passenger car market. Almost 90 per cent of the cars VW made last year were sold outside of Germany, with China overwhelmingly the largest export market and the United States in second place.

Iconic brands such as those in the VW stable, as well as fellow heavyweights BMW and Mercedes-Benz, have been a major contributor to the German reputation for quality and innovation. If that reputation is dented, there is no question that the broader economy will feel the effects.

Germany is the biggest economy in Europe, representing almost 30 per cent of output. It is also one of the strongest in the region, and the world.

Unemployment in Germany is just 5 per cent, economic activity has been robust for the past two years and it is the only large European country where government debt has declined since the global financial crisis.

In many ways, the rest of Europe's problems have been a blessing to Germany. Interest rates have remained at zero as the European Central Bank prints money to keep weaker members afloat, and the euro is almost 25 per cent lower against the US dollar than it was in 2011.

As the second-largest exporter in the world (after China), Germany has benefited hugely from this weaker currency. In July, Germany's trade balance hit its highest surplus on record, driven by strong export receipts.

Although not in the same ballpark as Australia or China, Germany is quite important to New Zealand as well. It's our eighth-largest export market, taking $1.3 billion of our goods and services each year.

Germany is particularly important to our tourism sector, as our second-largest visitor market in Europe. German tourists travel to more regions than any other group while they are here, and their length of stay and average spend per night are above average.

For all its problems, Europe has actually been an economic bright spot over recent months. Last month's manufacturing data showed new orders hitting a five-month high, and backlogs of new work rising to the highest levels since May 2011. Unlike in China, the US and Japan, selling prices have also been stable in the face of weaker commodity prices.

VW shares are down almost 40 per cent compared with a few weeks ago, and trying to guess where they go from here depends on a range of factors. Given the importance of the industry to the broader economy, let's hope the situation doesn't deepen any further and that it remains an issue isolated to VW.

With China looking shaky, subdued global growth and Greek worries only just behind us (for now), the last thing the global economy needs is cracks in the European economic powerhouse that is Germany.