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Economy in Brief

EMU Trade Balance Deteriorates on Rise in Nonmanufactured Goods Imports
by Robert Brusca  November 15, 2021

The EMU trade surplus shrank to €6.1bln in September from €9.7bln in August. The balance on manufactures trade logged a higher surplus, rising to €27.6bln in September from €26.3bln in August. But the balance of trade on nonmanufactures deteriorated significantly, falling to a larger deficit in September at -€21.5bln from -€16.6bln in August.

Exports do not show any consistent trend except that they continue to rise for both manufactures and for nonmanufactured goods and that the growth for nonmanufacturing exports generally have been stronger than for manufactures. In manufacturing, exports are up at a 5.2% pace over three months and by 6.8% over 12 months. For nonmanufacturing, exports are up at a pace of 17.8% over three months and by 28.2% over 12 months.

On the import side, once again, there are no clear accelerating or decelerating trends. Both manufacturing and nonmanufacturing imports are growing on all horizons. But nonmanufactured goods show consistent and extremely elevated rates of growth, rising at annual rates of nearly 50% or more over all horizons at 12 months, six months, and three months. In contrast, manufactured imports show steady growth at a pace usually below the 10% mark; they rise at an 8.7% pace over three months and by 12.8% over 12 months.

These flows underpin trade deterioration as the speed of nonmanufactures flows has consistently swamped the speed for manufacturing goods trade and as import growth rates have dominated exports. Rising oil prices and other commodity prices have kept nonmanufactured flows strong over the past year. Since we are in September, these calculations are now coming in a post-Covid period and are somewhat less affected by covid distortion per se although Covid obviously continues to be a factor with its on-again off-again impact on various economies.

Exports and imports by country: Germany, France and the U.K.
Country level data show that trends have more country-by-country idiosyncratic patterns than they have overarching patterns, another indicator that the virus no longer dominates trade flow patterns. France shows export growth stronger than import growth on most horizons with exports running at a double-digit pace. France also shows trade improvement in September. Germany shows imports as stronger over six months and 12 months and it shows trade deterioration in September as exports fell. The U.K., a non-EU country, shows imports as usually faster than export growth and trade deterioration in September with exports falling.

The table also shows exports for Finland, Portugal, and Belgium. There is no consistency in the flows here either. Finland shows consistent strong double-digit export growth. Portugal's exports gain some momentum but also show a 2% drop over six months. Belgium loses momentum but first logs significant double-digit growth rates over six months and 12 months that give way to an export decline at a -5.8% annual rate over three months.

The trade picture that emerges from the EMU data is mixed. Clearly, prices (inflation) are driving a lot of the results. Export growth is firm to strong and trade seems to be flowing although we know there are also supply chain problems mixed into the data. Possibly commodities are less affected by port issues because they travel in a different sort of ship and are off loaded differently rather than being part of the container ship problem where special ports and cranes are needed to off load goods.

However, the Baltic dry goods shipping index shows that there has been a sharp decline in that shipping index in recent days. The fall-off is steep as the chart below shows.

Despite the strength, we see above in nonmanufacturing trade flows (through September), the Baltic dry goods index is weaking on concerns about future demand especially about demand for commodities. One of the key issues is concern over the strength of the Chinese economy, an economy that has been reeling under the impact of a power shortage and its own zero-tolerance framework for Covid that has led to regional lockdowns even on the presence of a very small Covid outbreaks. However, today China's industrial production and retail sales reports showed growth in both output and sales, a reassuring development. Still, the sharp fall in the Baltic dry goods index makes it clear that while the West is fighting an outbreak of inflation whose effects are being hotly debated, China is fighting a battle of an entirely different sort. The two battles have opposite implications for the global economy. It is a very good time to pay close attention to the unfolding and dueling developments.

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