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Economy in Brief

Euro Area Surplus Contracts; Exports and Imports Slow As Trade Balance Hovers in a Lower Range
by Robert Brusca  August 13, 2021

The EMU trade surplus fell to €12.4bln in June from €13.8bln in May. The move was basically caused by a widening in the trade deficit for nonmanufactured goods. The manufacturing balance was little changed month-to-month edging lower to €29.2bln in June from €29.5bln in May. But the nonmanufactures deficit widened from €15.7bln in May to €16.8bln in June.

Still, the exports of manufactured goods have fallen for two months in a row while the imports of manufactures fell more or less in pace with exports in June but rose slightly in May as exports fell sharply. Sequential growth rates find both exports and imports gyrating more than trending. The chart depicts total exports and imports and shows clearly that trends have been broken off. Trade flows have not just slowed but have declined in the past few months, raising questions about the trend and the speed of their expansion ahead.

Growth rates for nonmanufactures have alternated between being very strong and extremely weak for exports. Imports of nonmanufactures have grown but also showed some very extreme rates of growth from 12-months to six-months to three-months.

Trade trends by country
German exports and imports show waning trends on growth rates over 12 months to six months to three months. Year-on-year both export and import growth is in excess of 20%, but over three months import growth is down to 11% and export growth to 7%.

There is a hint of weakness in French exports and import trends, but trade flows for France are more uneven than trend driven. Both exports and imports grow on all horizons. The hint of slowing is that for both flows, 12-month growth rates are stronger than three-month growth rates with each flow decelerating by about 7 percentage points between the two horizons. French export growth exceeds import growth over both 12 months and three months.

U.K. trade flows are more erratic than trend driven. Exports erratically slow with growth dropping from 11.4% over 12 months to a pace of 6.1% over three months. U.K. imports show the opposite tendency but with a decline in imports of a double-digit growth rate magnitude thrown into the mix over six months. Setting that volatility aside, U.K. imports grow by 23.5% over 12 months then the growth pace steps up to 28.2% over three months. The U.K. has most inconsistent export and import growth rates among these three examples.

We look at exports alone for Finland, Portugal, and Italy. All three of these countries show growth in exports ranging from strong to explosive over 12 months, but that degenerates to much weaker growth over three months in all cases.

These are data from June and so there is a bit of base effect pushing 12-month growth rates higher and creating a natural slowing after that. But the base-effect was the strongest in April and it is why year-on-year growth rates accelerated so much and have come down in May and in June. There will probably be some further stepdown for growth rates in July and August; by then the base effect should be played out.

The volatility in nonmanufactures trade flows has a lot to do with gyrations in commodity prices. Those seem to be settling down. But the future is still obscured by the spread of the virus and ongoing if somewhat more sporadic efforts to contain it. Still, either the virus affects growth through government policies to contain it or it has its impact directly as there is still a substantial fear of the virus, that causes people on their own to change behavior, and pull back from economic activity when the virus flares.

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