Global| Dec 18 2007EMU Trade Surplus Grows as Flows Slow
Summary
It may seem curious that so many Europeans are complaining about the strength of the euro while Europe’s economic data are off peak but are not collapsing and as the Euro Area trade surplus is still growing in October. Growing – the [...]
It may seem curious that so many Europeans are complaining
about the strength of the euro while Europe’s economic data are off
peak but are not collapsing and as the Euro Area trade surplus is still
growing in October. Growing – the SURPLUS? Why is Gernot Nerb of
Germany’s prestigious IFO saying that if the euro moves much higher,
the ECB might even consider cutting rates although Euro Area inflation
would certainly not accommodate that (nor would the growth rates of
money or credit for that matter)?
A closer look at the trade components shows what is going on.
Exports are still growing and growing faster than imports (8.6% Versus
6%, Yr/Yr for both). But one year ago export growth was 14.3% (y/y) and
one year ago import growth was 12.6% (Y/Y). So both flows have slowed
dramatically as the Euro has risen.
Over the recent three months imports are up at just less than
a 6% pace but with food and drink imports running at nearly a 25%
annual pace.
Overall exports are still growing as well, but if we look at
the all–important manufacturing category we see that manufacturing
exports have slipped from a pace of 15% one year ago to a Yr/Yr pace of
5.3% in November of 2007 and to a three month annualized pace of 4.2%
over three months. This is a marked slowdown. For imports of
manufacturing products the slippage is even more awesome. Imports of
manufacturing goods were up by 14.4% Y/Y in Nov of 2006. In Nov of 2007
that Yr/Yr growth rate is down to +1.6% and over three months that rate
is at a -10% pace.
The trade surplus continues to grow because the Zone’s imports
are falling faster than export growth, but both flows are receding
rapidly. The strong euro is impacting Euro Area exports and the
weakness in exports sending shivers through the economy and slowing
everything down impacting imports as well. It is no wonder that the
OECD is urging the ECB to be tolerant of its inflation overshoot. Even
so the policy endorsed by Nerb is an outliner.
These trade-offs are merely a sample of the sort of stuff
Europe can expect if it wishes to pursue for the Euro a role as major
reserve currency unit. Often what the FX market demands is a result
that is not copasetic with the needs the domestic economy. Welcome to
globalization.
| Euro Area 13-Trade trends for goods | ||||||
|---|---|---|---|---|---|---|
| m/m% | % Saar | |||||
| Oct-07 | Sep-07 | 3-Mo | 6-Mo | 12-Mo | 12-Mo Ago | |
| Balance* | €€ 4,017 | €€ 3,648 | €€ 3,931 | €€ 3,692 | €€ 3,251 | €€ (1,655) |
| Exports | ||||||
| All Exports | 2.3% | -1.2% | 15.3% | 13.1% | 8.6% | 14.3% |
| Food and Drinks | 0.2% | -1.8% | 3.4% | 11.0% | 7.6% | 15.0% |
| Raw materials | 1.3% | 0.6% | 1.5% | 6.3% | 6.8% | 19.7% |
| Manufacturing | -0.4% | -1.6% | 4.2% | 7.6% | 5.3% | 15.0% |
| Imports | ||||||
| All Imports | 2.0% | -0.9% | 5.9% | 11.2% | 6.0% | 12.6% |
| Food and Drinks | -3.7% | 8.8% | 24.6% | 18.1% | 11.4% | 8.7% |
| Raw materials | -0.5% | -5.0% | -16.5% | -0.4% | -4.1% | 35.7% |
| Manufacturing | -1.7% | -2.0% | -10.0% | 4.3% | 1.6% | 14.6% |
| *Eur mlns; mo or period average | ||||||
Robert Brusca
AuthorMore in Author Profile »Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.
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