Germany Now Imports More Capital Goods From China Than It Exports

Germany used to dominate the global production of machinery and technology-intensive goods. But that has changed in 2025. 

Germany now buys more capital goods from China than China buys from Germany, see chart below.

The competitive pressure on one of Germany’s core sectors is prompting the country to rethink its trade and industrial policies to reduce its dependence on China and bolster innovation at home.

This is not only happening in Germany. It is also taking place in many other countries.

Many countries are focusing on homeshoring advanced manufacturing capacity, investing in infrastructure, energy, defense, and supply chains.

It is not only deglobalization. We are entering a global industrial renaissance.

Germany’s capital goods trade with China has slipped into deficit
Note: Series shown as 12-month moving average. Sources: German Federal Statistics Office (Statistisches Bundesamt), Macrobond, Apollo Chief Economist

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The Economy Is Likely to Reaccelerate in 2026

When the trade war started in March, the consensus began to revise down expectations for growth.

But as trade deals were signed with different countries over the summer and into the fall, growth expectations have been revised up, see chart below.

Looking ahead, growth is likely to reaccelerate in 2026, driven by lower trade war uncertainty, a lower dollar, and the positive effects of the One Big Beautiful Bill, which the CBO estimates will boost GDP growth by almost a full percentage point in 2026, mainly because of accelerated depreciation.

2025 consensus GDP growth forecasts for the US and Europe
Sources: Bloomberg, Apollo Chief Economist

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It Is a K-Shaped Economy for US Consumers

Higher-income households have seen their stock holdings rise and their home prices increase. At the same time, the cash flow received in fixed income, including private credit, is near the highest levels in decades.

This strength of higher-income household balance sheets relative to lower-income balance sheets is the reason why consumer discretionary stocks in recent months have been outperforming consumer staples, see chart below.

Consumer discretionary stocks outperforming consumer staples
Sources: Bloomberg, Apollo Chief Economist

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Arguments for a Coming Rebound in the Economy

The arguments for a rebound in the economy over the coming quarters are that (1) Liberation Day was almost eight months ago, (2) fiscal and monetary policy are easy, and (3) easy financial conditions point to a reacceleration in the economy, see chart below.

Easy financial conditions point to a reacceleration in the economy
Sources: Bloomberg, Apollo Chief Economist

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Chinese Exports Shifting from the US to Asia

Since the beginning of the year, Chinese exports to the US are down $75 billion and Chinese exports to Asia are up $150 billion. Chinese exports to Europe, Africa and Latin America are basically flat, see chart below.

Chinese exports to Asia are up double the amount of the decline in Chinese exports to the US
Sources: China General Administration of Customs (GAC), Macrobond, Apollo Chief Economist

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Inflation Rising

Looking at annualized month-over-month growth rates shows that 55% of items in the CPI basket are growing faster than 3%, see chart below. This is the reason why it is difficult for the Fed to cut interest rates in December.

More than 50% of items in the CPI basket show at least a 3% price increase
Sources: BLS, Apollo Chief Economist

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