EMU Trade Surplus Grows

The EMU trade picture swung from deficit to mounting surpluses and that has been in train over the last 10 months. This month the jump was particularly large as the surplus ran up to €10.5bln from €6.8bln.

Month to month exports jumped by 2.4% as imports remained flat. Over the past year the two largest EMU nations, Germany and France, have exports up just short of 5%; then, for Germany on 1% yr/yr; GDP growth imports are off by 0.1% while for France 0.3% yr/yr GDP growth has spurred imports to rise by 5.9%.

By comparison, in the UK with an independent currency and GDP growth of -0.8% yr/yr imports are up by 0.8% over 12-months and exports are off by 3.1% yr/yr.

Sequential growth rates for EMU imports show weaker and weaker growth rates as we move from 12-mo to 6-mo to 3-mo. By comparison EMU export growth is halved from 12-Mo to 6-mo but then growth has stabilized at around a pace of 6%. Both German and French exports show a similar pattern of resiliency. In the UK export trends are unambiguously plunging. The UK three-month export growth rate is -37% (annualized) compared to -3.1% yr/yr and -5% over 6-months.

The Euro Area remains gripped by various forces ranging from a global economic slowdown to weak internal growth with several members in a crisis situation that has gripped the Zone itself and led the euro to fall in value. The euro’s fall spurs exports (outside the Zone) and retards imports. Still, it is domestic activity that is also having a big impact on trade flows as some members are in deep and persisting recessions. Even Germany is floundering on the edge of GDP contraction with only two straight quarters of positive growth and the recent one being only 1.1% at an annual rate.

Domestic weakness can be a powerful force to contract a current account or trade deficit or to spur a widened surplus. Typically even in a global slowdown period the domestic weakness would have a larger impact on imports than the global weakness would have on export strength. This is primarily because a ratcheting down in global growth would usually imply slower growth in still fast-growing emerging economics while a slump at home would generally mean a contraction in GDP not just a slowdown. With exports being sold into countries with a broad array of growth rates the impact of the global slowdown on exports would be softened by the portfolio of varied growth rates reflecting the varied demand for exports while imports would be affected by a singular and probably negative growth rate at home.

Of course for something as broad as the Euro-Area, its 'Zonal' growth rate is also the product of summed up and weighted national growth rates but even with the differences within the Zone the sense of the Zone as a whole being in the same cycle has become more compelling. Germany is the outlier on the upside and Greece has been the outlier on the downside. And while intra-zonal differences in the members’ rates of growth persist, the German rate has been consistently hammered down to a point where a positive growth result in Q3 is no longer taken for granted. Despite the widened trade surplus, which does augment e-Zone GDP growth, it is hard to take the results here as a very positive statement about the economic health of the Zone itself.

Euro-Area Trade Trends for Goods   M/M% % SAAR     Jun-12 May-12 3M 6M 12M 12M Ago Balance* € 10,480 € 6,785 € (1,774) € 5,573 €(2,045) € 405 Exports All Exp 2.4% 0.4% 6.0% 6.8% 14.9% 4.8% Food and Drinks -2.5% 4.5% 4.3% 3.0% 11.5% 4.8% Raw materials 3.7% 4.8% 2.1% 7.7% 14.0% 10.6% Other 2.8% 0.0% 6.2% 7.1% 15.2% 4.7% MFG -1.6% 4.0% 3.7% 3.0% 11.4% 3.0% IMPORTS All IMP 0.0% -0.9% -9.4% 3.4% 4.1% 5.3% Food and Drinks -4.0% 3.5% -13.7% -5.9% -0.4% 9.9% Raw materials -5.9% -0.6% -20.3% -7.7% -11.0% 17.8% Other 0.6% -1.2% -8.5% 4.7% 5.3% 4.3% MFG -1.8% 2.0% -0.7% 0.9% -0.2% 2.6% *Eur mlns; mo or period average (SA, WDA) Germany Jun-12 May-12 3M 6M 12M 12M Ago Exports -1.5% 4.2% 3.4% 11.7% 4.8% 13.5% Imports -3.0% 6.2% -7.6% 9.6% -0.1% 9.2% France Exports -0.6% 0.9% 5.9% 3.3% 4.9% 2.4% Imports -0.1% -0.3% 6.8% 6.2% 5.9% 7.7% EU: UK Exports -8.4% 5.5% -37.3% -15.3% -3.1% 4.5% Imports -1.2% -0.4% -14.8% 3.8% 0.8% 8.2%