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Economy in Brief

EMU Trade Deficit Improves But Picture Does Not 
by Robert Brusca April 17, 2009

Trends are getting worse. The EMU trade deficit improved in February on a tiny rise in exports as imports continued to drop. Even though both exports and imports put in an ‘improved performance’ in February compared to January the trends in trade for exports and imports are still deteriorating and nearly in step. Export and import annual growth rates are accelerating in a downward direction as three-month growth rates show faster decline than six-month rates and six-month growth rates are declining faster than the 12-month rates. The pace of decline over three months for both exports and imports is over 40%. It is far from clear that the abatement in the pace of decline for exports and imports in February is for real. It may simply be a partial recovery from the deep decline in January.

A balanced blow. The chart shows how rapidly trade flows decelerated after September of last year. But that impact was BALANCED, hitting exports and imports nearly equally. Deficit deterioration had already reached its then-worst level in July of 2008. The slowdown is global in nature; it has hit growth within the e-Zone as well as outside of it more or less equally. Trade trends show that. The monthly growth rates show a hint of slowing. The year/year rates of growth have improved, but the sequential growth rates are still deteriorating for both exports and imports. It will take a few more months to see if we have reached low enough levels that export and imports can begin to build a base for improved future growth.

No improvement in the fundamentals. Certainly there are no economic signs yet that point to improvement. PMI surveys have made very modest improvements from their worst levels but even they continue to signal contraction. Industrial production and orders continue to show sharp deterioration. Unemployment is still rising. Retail spending remains weak. There is no grass-roots European growth. European fiscal plans have been less ambitious than in the US . So, there is little basis for optimism. For now we are left to watch the trends in the trade flows themselves.

E- Area 16-Trade trends for goods
  m/m% % Saar
  Feb-09 Jan-09 3M 6M 12M 12M Ago
Balance* €€ (3,961) €€ (5,356) €€ (3,507) €€ (3,265) €€ 1,010 €€ (1,119)
  All Exp 0.5% -11.9% -44.3% -37.6% -23.3% 9.4%
  Food and Drinks -2.9% -5.2% -28.1% -19.4% -13.8% 13.0%
  Raw materials -2.8% -6.9% -34.3% -53.1% -33.8% 18.3%
  Other 0.8% -12.5% -45.6% -38.4% -23.7% 9.0%
  MFG 0.7% -12.9% -42.6% -37.6% -25.2% 7.9%
  All IMP -0.8% -8.3% -43.9% -36.9% -19.8% 8.7%
  Food and Drinks -0.2% -5.7% -18.8% -17.3% -9.6% 8.4% 
  Raw materials -5.3% -26.2% -81.1% -60.8% -35.1% 1.3%
  Other -0.7% -7.4% -42.3% -36.6% -19.7% 9.1%
  MFG -3.5% -6.1% -42.0% -33.6% -20.3% -0.5%
*Eur mlns; mo or period average
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