Data released by the German Federal Statistical Office on Monday showed that Germany's exports fell 0.9% in July from a year earlier due to continued low global demand.

Carsten Brzeski, head of global macroeconomics at the International Group of the Netherlands (ING), said, "Trade is no longer as strong and resilient a growth driver for the German economy as it was in the past, but rather a drag."

Supply chain frictions, a more decentralized global economy and China's growing ability to produce goods previously purchased from Germany were all factors that affected exports in June, Brzeski said.

Imports rose 1.4 percent in July, the data showed.

The foreign trade balance showed a surplus of 15.9 billion euros ($17.15 billion) in July, compared with 18.7 billion euros the previous month.

With the decline in retail sales in July and the disappointing export figures for July, the German economy started the third quarter on a very weak footing, suggesting that the risk of a relapse into contraction remains high, Brzeski said.

Exports to EU countries rose 0.5 percent from a year earlier, while exports to non-EU countries fell 2.5 percent, the office said.

Exports to the EU keep rising

Exports to EU countries rose 0.5% m-o-m to 71.9 billion euros in July, while other foreign business fell 2.5%. The United States remains the top buyer country. Although the high interest rate level dampened demand for "Made in Germany" goods, sales of goods worth €13.5 billion rose by 5.2%. Exports to China also rose by 1.2% to €8.3 billion.

On the other hand, exports to the United Kingdom declined and exports to Russia rose by 2.2% to €700 million, despite Western sanctions imposed as a result of the war in Ukraine.

Deteriorating export expectations

An Ifo survey in August showed a slight deterioration in German export expectations due to weak foreign demand.

Klaus Wohlrabe, head of the ifo survey, said, "German exporters continue to struggle with weak global demand." In addition, more and more companies are complaining that their global competitiveness is being affected.

"Weak global demand is not only creating more and more problems for companies," said Bastian Hepperle, economist at Hauck Aufhaeuser Lampe Privatbank. "Their competitiveness on the global sales market has also been weakened."

Thomas Giesel, chief economist at VP Bank, said, "As long as the global economic environment remains weak, German exports will also remain sluggish."

China produces rather than buys

Experts say there is a growing risk that Europe's largest economy will slip into recession in the second half of the year, given weak exports.ING chief economist Carsten Brzeski said, "Foreign trade is no longer the strong, resilient growth engine for the German economy that it once was, but rather the brake pads."

Supply chain frictions and a more fragmented global economy are a liability. "In addition, China is increasingly capable of producing goods that were previously purchased in Germany," explains Brzeski.

"It's not just weak global demand that is causing companies more and more problems," comments Bastian Hepperle, an economist at the private bank Hauck Aufhäuser Lampe. "Their competitiveness on the global sales market has also been weakened."